Many donors select their children, other relatives, or close friends to be the successor donor-advisors on donor-advised fund (DAF) accounts after they pass away, while others elect to terminate the accounts upon death and recommend granting out the remainder to charities.
Succession and disposition plans can be changed after a DAF account has been established—and it’s important to keep all involved aware of these changes. The smoothest transitions happen when those who created and funded the DAF discuss the transition with their chosen successor advisors far in advance.
What Happens When Appointed Successor Advisors Aren’t Aware of the DAF?
It’s quite common for someone to be notified that they’ve become the successor advisor on a DAF without knowing anything about it beforehand. A parent, relative, or friend may have selected them without their knowledge, and suddenly they’re responsible for recommending grants to charities from an account they didn’t know existed.
There’s often a period of confusion for these individuals, leading to a series of questions, such as:
- “What is a DAF?”
- “How much is in the account?”
- “Can I use the money for myself?”
The initial conversation should be an uplifting one in which someone finds out they can recommend grants to their favorite causes from an already-funded account. Instead, these situations bring confusion and consternation. Luckily, they’re easily preventable.
What Can Donors Do to Prepare?
DAF accounts can continue for many years, even after the original donor passes. To prepare for that eventuality, donors should keep all information up to date with their DAF sponsor. This includes changes to their contact information, their disposition plan, and/or details about their chosen successor advisor.
It’s not uncommon for donors to forget who is listed as the successor advisor. Verifying the information is important and usually fairly easy, as is updating the name listed if necessary. Once that individual is determined and the account is updated, donors should have a conversation with their chosen successor advisor, explaining all pertinent details about the DAF, its purpose, and their part in it.
The Benefits of Discussing a DAF Account With Successor Advisors
It is wise for the donor who created the DAF to discuss the account with their successor advisor to prepare them and pave the way for a productive, charitable future. Benefits include:
- Successor advisors are more likely to support some or all of the charities the DAF creators funded if they know in advance.
- The conversation is an opportunity for donors to impart charitable values on their children or heirs, explaining why they give and support specific causes and charities.
- It could allow children and family members to get involved in giving decisions sooner so they can be prepared to continue giving later.
- It brings families together and helps them stay united after the initial donor’s passing, recommending grants from the DAF to honor their loved one’s memory.
- Planning ahead allows heirs to discuss their options—children may live in different areas or have different beliefs, so they may be able to suggest grants separately or establish separate DAFs ahead of time.
- When informed about charitable giving in advance, heirs have fewer questions upon their loved one’s passing, especially if IRA assets are donated to a DAF (which also reduces the taxes incurred).
- It offers financial advisors a chance to establish a relationship with the children or heirs who may choose to continue to work with them to grow these charitable assets and support the family’s philanthropic efforts.
Reach Out to AEF to Plan for Your DAF
Whether you’re looking to set up a DAF for yourself or your client, or you want to discuss succession plans for an existing AEF DAF, you can reach out to us for help.
Financial advisors who are looking to engage their clients, and donors who need help developing their charitable mission, can benefit from reading the expert insights on our thought leadership page.
Having this conversation with successor advisors now will lead to a more positive outlook later when the DAF transitions to them. Instead of asking “What is a DAF?” successor advisors will be able to step into their new role and seamlessly make grants to deserving charities.
NOTE: This article has been revised and updated from its original version written by Ken Nopar.