Donor-advised funds are fast becoming a vehicle of choice as either the sole charitable giving vehicle for donors or as a “sidecar” they can add to their private foundations and trusts.

From 2016 to 2017 an all-time high of $29.23 billion was contributed to donor-advised funds, according to the National Philanthropic Trust’s recently released 2018 “Donor-Advised Fund Report.” That brings the total charitable assets in these funds to $110.01 billion (now almost double the size of the Bill & Melinda Gates Foundation). Even more impressive is the increase in the number of donor-advised fund accounts opened from 2016 to 2017, a 60% increase in one year. More and more clients are asking about these vehicles, and for many the DAFs have become their new charitable checkbook.

Despite this accelerated growth, though, critics have noticed these vehicles are sometimes turning into “parking lots” for money that’s not pouring out as quickly as anticipated. Such observations have come out of articles by The Chronicle of Philanthropy and The New York Times.

Unlike private foundations, which require 5% to be paid out every year, donor-advised funds currently have no minimum annual payout requirement. So what would encourage an account holder to give and give strategically?

This is where advisors can play a key role—by helping clients give more thought to the purpose of their charitable dollars and integrating their philanthropic interests and intent, relative to the donor-advised fund, into their legacy plan and their estate plans.

Where To Start

An important place to start is to have a mission or vision for the dollars in the funds. Mission statements are a fundamental backdrop that guides charitable giving. At the time a donor-advised fund is established, you may want to ask your client:

• What is your motivation for being philanthropic?

• What issues or causes do you care deeply about?

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