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Much has been written about the reasons why so many individuals, couples, and families have established donor-advised fund accounts (DAFs) in recent years. With close to 300,000 accounts, these have become by far the most popular charitable vehicle. Many clients are planning to open accounts before year-end, often because their financial advisors, CPAs, and attorneys have been discussing the tax advantages and other benefits with them.
While there is still time to establish DAF accounts this year, it is beneficial for advisors to reach out and talk with clients to determine whether establishing one would make sense. Even if it does not, having the charitable conversation now will have many short and long term benefits to the clients, advisors, and charities the clients support.
The types of clients who have established or who would be excellent candidates to create DAFs include:
- Clients who are approaching retirement (advantageous to make large donation while earning high income and can receive greater tax benefit, and then can make grants from DAF account now and in future)
- Clients who have pending liquidity event (sale of business/asset or inheriting wealth)
- Clients who have already retired or sold their business and now have time, assets, and interest to get involved with philanthropy
Though many advisors often previously engaged in charitable-planning conversations primarily with those clients in the last category, it is now obvious that these discussions are taking place with many other types of clients.
As a result, the number of DAFs has doubled in recent years. Advisors and clients are now aware that there is no charge to establish them, they are easy for clients to use, administrative fees are minimal, amounts in DAFs grow tax-free, advisors can manage the assets in the funds at some DAF sponsors, donors can receive the maximum tax deduction at the time of donation yet make grants over time, and some DAF sponsors can accept complex assets.
Because many clients have highly appreciated assets and nearly all clients have charitable intent and make donations every year, most advisors feel that this is an ideal year for clients to create or make additional donations to their DAF accounts. Others are encouraging their clients to “pre-fund” their future charitable giving this year because of pending tax changes that may make future donations less tax-advantaged.
Since the year-end volume is anticipated to be so great again, it is critical that advisors start the conversation now so that clients have time to move forward this year. It is already late in the year but there is still time. Some DAF sponsors have already announced late November cutoffs for donations of different assets held at different custodians, while others have later deadlines. Even if clients do not open accounts immediately, this conversation will help avoid the common situation where donors ask their advisors to donate securities to many different charities on December 31. Clients, advisors, and non-profit organizations all benefit when the conversation happens early.
Ken Nopar is the senior philanthropic advisor for the American Endowment Foundation, the country’s leading independent donor-advised fund since 1993 with over $1.4 billion in assets. AEF works with donors and their wealth, legal and tax advisors in all 50 states.
Read more articles by Ken Nopar
