Donor-advised funds (DAFs) have been growing in popularity – and for good reason. They are simple to set up, and their flexibility and tax-saving capabilities make them excellent options for estate planning, business exit strategizing, and (most importantly) charitable giving.

However, choosing the best DAF depends on the donor’s unique circumstances.

To help donors make an informed decision, here are some helpful tips and questions to consider when evaluating a DAF.

10 Questions Potential Donors Should Ask About DAFs

These ten questions and their follow-ups can help guide potential donors and financial advisors when selecting and evaluating DAF sponsors.

Question #1: What Are the Granting Limitations?

Some DAF sponsors impose limitations on grants. It’s important to ask about any restrictions that exist, such as:

  • Are there limitations on grants to charities outside the sponsor’s mission or geographic region?
  • Can the donor recommend how much to grant to charities at any time?
  • Does the sponsor impose a maximum on DAF funds that may be granted each year?
  • If the sponsor is a university or single-issue DAF sponsor, does it require a large percentage of the funds be granted to itself?

Understanding the restrictions on grantmaking is essential.

Question #2: What Types of Assets Can the DAF Sponsor Accept?

Cash may be most common, but many sponsors can accept other forms of assets into DAFs. Follow-up questions may include:

  • Can the DAF accept appreciated securities?
  • What about complex assets like real estate, privately held stock, or LP and LLC interests?
  • Are there minimum donation requirements for these types of assets?

Question #3: How Flexible Are the Provisions for Succession Upon the Donor’s Death?

It’s important to understand what happens to the DAF upon the donor’s death. Additional questions regarding succession include:

  • Can the donor’s advisory privileges be passed on to one or more successor advisors?
  • Could the donor leave recommendations to the DAF sponsor to distribute funds to other charities?
  • Does the remaining balance revert to the DAF sponsor’s general fund or endowment upon death?
  • Can the DAF remain active in perpetuity?

Question #4: Can the Donor’s Financial Advisor Select and Manage the Assets in the DAF Account?

Some DAFs allow financial advisors to manage the DAF’s assets, while others do not. Ask:

  • Does the DAF allow financial advisors to manage assets with their preferred custodian?
  • What is the minimum asset threshold for this kind of management?

Question #5: Does the DAF Sponsor Have a Retail DAF Offering?

Some DAF sponsors only work with donors who have a financial advisor to manage the assets. You may want to ask:

  • Can individuals open accounts directly with the sponsor?
  • Are there investment options available?

Question #6: Is the DAF Sponsor Truly Independent?

It’s important to understand whether the DAF sponsor is an independent entity or part of a larger commercial group. Questions include:

  • Does the sponsor or an affiliated entity offer wealth management or wealth planning services?
  • Could these services compete with those offered by the donor’s financial advisor?

Question #7: What Are the Investment Options for the Assets in the DAF Account?

Some DAF sponsors pool funds, while others offer more flexibility. To understand your options, ask:

  • Are the funds pooled with those of other DAFs?
  • Are there restrictions pertaining to other investments, like securities?
  • What is the recent performance of the pooled funds and their related investments?

Question #8: Is Online Access Available for the DAF Account?

Secure online access can make managing a DAF more convenient for the donor. Key questions to ask:

  • Can donors make grant recommendations online?
  • Can they view the account history, including past contributions and grants made?

Question #9: What Are the DAF Sponsor’s Costs and Practices?

Each DAF sponsor has administrative costs and operational practices. Vital questions include:

  • What is the annual administrative fee?
  • How often and quickly does the DAF sponsor distribute grants?
  • Does the DAF sponsor provide personal service, or is it limited to larger accounts?
  • Can the account be transferred to another DAF sponsor, or is it held permanently by the initial sponsor?
  • What resources are available to help donors and financial advisors?

Question #10: What Is the History & Size of the DAF Sponsor?

It’s important to know about a DAF sponsor before you entrust them to handle your donation. To get these details, you can ask:

  • When was the organization founded?
  • How many DAF accounts do they administer?
  • What is the sponsor’s total assets under management (AUM)?
  • How many full-time employees and board members are there?
  • Is the DAF sponsor’s IRS Form 990 on their website or readily available?

Choosing the right DAF is an important decision, and asking the right questions ensures that your charitable goals will be met effectively. Contact us today to learn more about our DAF offerings and get answers to any questions you may have.

Additional Resource for Choosing a DAF

A Guide to Selecting the Right Donor-Advised Fund: The What, Why, & How of a DAF