Donor-Advised Bequests. What’s That All About?
A recent article in the Boston Globe highlights the longstanding concern that some donor-advised funds (DAFs) may be warehousing (i.e., not spending) too much money that could already be funding the charitable sector.
What Gift Planners Should Know
In fact, the rate of distributions by DAFs varies widely: those devoted to a single issue tend to spend quickly, while community foundations are generally somewhat slower. The big-name DAFs (Fidelity, Vanguard, and others) are smack in the middle, but are still miles ahead of most private foundations. That said, the amount of unspent charitable resources held by DAFs is chokingly large.
Why should gift planners care about this? Because within the retained assets of DAFs, opportunity lurks. A significant portion of unallocated funds may stem from accounts abandoned by living owners or, more pertinently, by decedents who left no after-death instructions. Some DAFs may voluntarily distribute such funds to charities previously supported by the donor, but this is neither a requirement nor a universal practice. Just as often, those assets may wind up in an internal fund to be used for charitable purposes selected by the DAF and not by the original donor.
CCK Comment
Where a charity receives DAF-based support from a particular donor, the gift planner should consider confirming that there are after-death instructions in place. These generally take one of two forms: (1) a specific request to distribute the entire account to one or more designated charities; or (2) the appointment of a “Successor Advisor” who will presumably carry out the original donor’s wishes. Without instructions, the account is the DAF equivalent of an intestate estate – distributed according to institutional policies.
Conclusion
A transfer to a DAF completes the charitable gift and triggers any desired tax consequences. As time goes on, it is easy for a donor to forget about those assets. Gift planners would do well to provide the occasional reminder.
Be sure to take a look at our article analyzing two bequests that made the news.
This article was originally published on our LinkedIn on April 3, 2024.