This topic came up in a discussion I had with some other lawyers about a week or two ago. We were talking about different ways that our clients like to leave bequests and 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 our clients who said they really wanted to leave something to a charity, but they weren't sure which charity to use, and they weren't sure how to go about doing it, they weren't even sure what to put in their will.

Our discussion came down to what about looking at something that's called a Donor Advised Fund. That may be the way to solve that answer for that client, and maybe for you as well.

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 social movements or causes, 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

You are probably also wondering what kind of benefits you can get from using a Donor Advised Fund. Depending on your goals, these are some common benefits:

  • The biggest benefit is you get an immediate tax deduction for your donation. So let's say you make your donation on December 15, but you don't have to then 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.
  • You can also do it as part of your estate plan. So 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 given to charity and there's somebody there to administer it after you're gone.

Drawbacks to a Donor Advised Fund

Donor Advised Funds aren't without their drawbacks and people raise a variety of concerns about them. For example,

  • 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.
  • A gift to a Donor Advised Fund is "irrevocable" - so if you're doing this donation 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.

If this is a strategy you want to use with your estate plan, there are two ways you can do this. The first way is you can try to do this yourself, but I'm sure you know as an attorney, I'm going to recommend that's not what you want to do. The second thing you can do, 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.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.