If you've never heard of a Donor Advised Fund, then you may be missing out on a way you can make your charitable contributions that works well with your estate plan if that's what you're looking to do.
This topic came up in a discussion I had with some other lawyers - we were talking about different ways that our clients like to leave bequests and leave other charitable donations to charities and other nonprofit organizations. One of the attorneys in the group really wasn't sure what to do with one of their clients who said they really wanted to leave something to a charity, but they weren't sure which charity to use. They were unsure about how to do it and they weren't even sure what to put in their will. Our discussion turned to looking at Donor Advised Funds as a way to solve the answer for the client.
What is a Donor Advised Fund?
A Donor Advised Fund is usually an account that you create that's owned and administered by a charity or not-for-profit organization. You make a charitable contribution to that fund, and then you can suggest to them what kind of charities you would like to use it for. So if, for example, you're very worried about civil rights, or if you're worried about abortion rights, or if you're worried about some other kinds of rights these Donor Advised Funds usually have a set of charities they work with, and you can donate the funds to the charity first, and then you can decide down the road how you'd like those funds used.
Benefits of a Donor Advised Fund
People who have researched them often ask "What are the benefits of working with a Donor Advised Fund?" Some common benefits are,
- An immediate tax deduction for your donation. If you make your donation on December 15, you don't have to choose what charity the money goes to before the end of the year to get your charitable donation deduction. In fact, you can wait years before you choose what charity is, but you get your deduction for that tax year. So this is a tactic that I will often see at the end of the year when people are trying to make sure they're getting their charitable deductions met for their tax returns.
- Estate Planning. If you're really not sure what you want to do yet, but you want to leave something for charity down the road, you can put a Donor Advised Fund in your estate plan, and then when you pass away, the money can be given to the Donor Advised Fund. You can either give them an idea of what type of charities you want to give to or even specific charities. But this way, you're still giving to charity and there's somebody there to administer it after you're gone.
Concerns about Donor Advised Funds
Donor Advised Funds aren't without their critics. There have been people who've raised a variety of concerns about them, including
- A Donor Advised Fund is not legally required to spend the money they receive. They can actually hold on to it for a while. And they in fact have the final say in what happens to the money that they receive.
- A Donor Advised Fund will charge you fees for these donor accounts. It can either be a monetary fee, or it can be a percentage of the money that you have on deposit with them.
- The donation is irrevocable, so if you're doing this donation to a Donor Advised Fund while you're alive, you can't get the money back. That money belongs to the Donor Advised Fund and it will be used by them to give to whatever charity or be held by them, but you can't take the money back.
Should You Donate to a Donor Advised Fund?
This is a strategy that my clients commonly use with their estate plan and there are two ways you can do this yourself. The first way is you can try to do this yourself, go for a DIY solution and hope it works. For some people, this will be an easy donation to set up, but I'm sure you know as an attorney, I'm going to recommend that's not what you want to do in this case. The smarter way is to work with your attorney, when you're creating your estate plan, if there are certain charities or certain movements that you want to make sure you're giving money to talk to your attorney about whether it makes sense to put a specific request in your will or maybe a Donor Advised Fund is the best way for you to leave behind these charitable donations.
Next Steps
If you're ready to get started, let's set up a Legal Strategy Session - a 15 or 20-minute phone call to discuss what your goals are for your charitable donations and whether or not a Donor Advised Fund makes sense for you and your estate plan.
