Most donors who establish donor-advised fund (DAF) accounts typically select an heir or other family member to be the successor advisor to the account after their deaths. This can ensure that the family’s tradition of giving continues and can help in keeping the family united. It is always beneficial when the donor-advisors and successor-advisors discuss the account before any transition so the family philanthropy can seamlessly continue. Fortunately, this conversation usually takes place because when it does not, the successor-advisors are often surprised to learn after the death of their parent, aunt or sibling who created the account that the DAF exists and they are responsible for making grants (and not receiving this amount themselves!)
Increasingly in recent years, a number of financial advisors and attorneys have reached out to discuss situations in which their clients have clearly different charitable goals and interests than their children, and they do not want their children to be able to send grants to charities they do not approve of after their deaths. Others have expressed that their children are not old or mature enough to make these important decisions, while some have thought that their heirs will not take the responsibility seriously or simply have very little charitable intent.
Sometimes children have become estranged. Other donors get along well with their heirs and have similar beliefs but simply want to make their own grants and let their heirs fund and establish their own accounts. Some donors have already given their children as much as they intend, while others have very successful children who don’t need their help to fund their philanthropy.
DAF-sponsor selection is important
One of the advantages of DAFs is that donor-advisors are usually allowed to easily change successor advisors or disposition plans once the account is established. Some DAF sponsors do not allow accounts to be passed down to successor advisors and the assets in the DAF must instead be granted at death to various charities or to the DAF sponsor itself. It is therefore important for advisors and their clients to select the most appropriate DAF sponsor initially, or be sure that should they wish to change DAF sponsors in the future, that they will be allowed to do so.
How to get children engaged
For DAF donors who want their children to continue their account as successor-advisors, they can take steps to ensure a smooth transition. This can begin when the children are younger, as the parents may allow them to research and select charities to which the parents can recommend grants on their behalf. This can be done with grandchildren or nieces or nephews as well. Families can go on site visits to various charities, attend fundraising events, and volunteer.
Additional Reading: Eight Reasons Why Older Clients Like DAFs
There are ways in which some DAF donors respectfully engage their children in their giving, even if they do not necessarily agree with their beliefs or charitable interests. Some will make grants on behalf of their children from their DAF and give them an annual grant allowance. Once the parents see that their children are trustworthy, they sometimes change their mind and allow the children to become the successor advisors on the DAF account. Other parents create new DAFs for them or split the existing one into separate DAFs for the children, especially if the children’s visions are not aligned. Rarely are separate DAFs created for children under 25 and usually is not possible for those under 18.
“It is difficult for philanthropy to bring a family back together, but it can be helpful to keep a family united.”
And in certain situations where the parents really do want to involve their children, in spite of their differences, philanthropic advisory firms can be brought in to help plan for the future and figure out a solution that will be satisfactory to all. It is difficult for philanthropy to bring a family back together, but it can be helpful to keep a family united.
However, for the reasons listed above, some donors do not want successor donor-advisors to continue making grants from their DAF accounts when they are no longer living. When this is the case, donors generally have two choices: to recommend grants that will close out the account at the death of the last surviving donor-advisor, or to establish a disposition plan that will allow the DAF account to continue without input from any other donor-advisor. The DAF sponsor is always the legal owner of the assets in the DAF account, so it is important that the DAF sponsor approves of any disposition plan that the donor recommends.
Though many DAF sponsors permit disposition plans to exist in perpetuity, donors in recent years have been considering whether this in fact is ideal. Over time, some charities may no longer exist or be relevant, so some donors determine that they want to provide grants for a limited lifespan of 10, 20, 50 or 100 years after their deaths. As a result, they create a disposition plan that specifies an amount or percentage of the assets in the DAF account that will be granted to charities each year. Others grant out some assets at death and let successor advisors grant out the remainder over time.
How to make the greatest impact
There are many options available, but planning ahead can enable the donors who created the DAF to have the greatest impact upon the causes and charities that are most important to them. Charitable planning is essential for all clients, regardless if they have a DAF or private foundation, or just intend to leave direct bequests to specific charities. As we’ve seen in the past several years, clients’ charitable plans can change as events in the world or their own lives occur, so it is wise to revisit these plans on a regular basis.
Ken Nopar is the vice president and senior philanthropic advisor for AEF, a leading independent donor-advised fund since 1993 with $6 billion in assets under oversight and 14,000 DAFs. AEF works closely with its donors’ wealth, legal and tax advisors in all 50 states. Nopar can be reached at [email protected].