Which Donor Advised Fund is the Right Choice?
Submitted by American Endowment Foundation on February 20th, 2015
By Eric Kinaitis
Determining and defining the best choice available when it comes to opening a new donor advised fund (DAF) relies on a variety of factors the donor and their trusted advisor need to work through together. With thousands of DAF administrators available, being able to narrow down the best choices can be a difficult task.
For the donor, the questions they need to consider include:
How much does the donor give to charity each year?
If a donor normally donates only a few hundred or a few thousand dollars a year or less, a DAF may not be a relevant choice for them. Going the traditional route of making direct cash donations to their favorite causes may still be their best option.
Is the donor advised fund affiliated with another entity?
If it is affiliated with a for-profit organization, how may that effect available investment choices and contribution types? If the DAF is affiliated with a non-profit organization that has a specific agenda (programmatic, religious, social, etc.), how might that agenda limit the scope or flexibility of the donor using their DAF as they desire? Some organizations do not allow a DAF to be transferred to another DAF administrator, essentially creating a “hostaged” account. Does the DAF under consideration have such a policy?
What kind of contributions can be made?
Determining the most likely asset that a donor is willing to give may help determine the best DAF choices. Some DAFs may not have the capability to easily accept gifts such as closely-held shares, real estate, life insurance and other alternative assets.
What kind of grant distributions are allowed?
Is there a minimum annual distribution requirement the donor must give, or a maximum annual limit that restricts how much can be given away? Are there restrictions on grant distributions, i.e. geographic, religious, etc.? Is the donor comfortable with those restrictions on how the money can be granted?
What kind of succession is permitted?
When the donor dies, what happens to their fund? Some organizations take complete control over the DAF when the donor passes away. How flexible are the provisions for succession upon the death of the donor? Is involvement limited to the donor and their surviving spouse? Or can the donor name other advisors such as family members from succeeding generations? Is there a time limit in effect upon how long successor advisors can remain involved before sole control reverts to the DAF administrator?
Is there online access available to the DAF account?
Does the program offer the ease of secure online access to the account and the ability to make grant disbursements online?
What are the costs?
Is there a set-up fee or termination fee? What is the annual administrative fee? Are there hidden fees in the fine print, such as minimum account level charges? Does the organization require a certain portion of the fund to be set-aside for its own purposes?
For the financial advisor/planner, a question they need to ask is:
What kind of investments can be made?
What investment choices are available? Are contributions pooled (meaning that the dollars donated are pooled with other donors for investment purposes?) Or can the dollars be managed in a separate investment account by the donors’ existing financial advisor? This would allow the advisor to manage their client’s charitable dollars under the same investing philosophy they use for their client’s other investment accounts.
Of additional concern, are there any minimum account size limits that must be reached before an advisor is permitted to directly manage their client’s investment account?
Another factor which may not be initially realized, is the fact that illiquid assets such as S-corp shares, real estate , or life insurance policies held within a DAF investment account help increase the assets under management that the advisor is responsible for.
A guide to comparing some select DAFs can prove a good starting point to compare the benefits and pitfalls of other donor advised funds.
Contact or call us at 1-888-660-4508 and let us discuss what DAF may be the best for you. We look forward to discussing your needs and interests in greater detail.