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?

• What would you like to accomplish through your giving?

• What geographic areas are you focused on?

The answers to these questions can help clients form a vision and mission statement. Without a statement, donors may not know what to do with their charitable dollars in the first place and will let them sit there. But when clients go about the process with clarity of intent, it prompts giving and good giving.

So while you are setting up the donor-advised fund for clients, discuss their time horizons for giving. Do they want to spend down the fund to galvanize change during their lifetime? Do they want to give more while they are living, or more after they die?

The more proactive you are when a client is getting started with the fund, the greater the satisfaction the client will feel, both about the giving and about you as a trusted advisor. And you cement that role by asking questions and opening up the conversation.

Here are some other questions you may want to ask:

• What charitable giving activities and organizations are you currently involved in (either with money or time)?

• Do you want to give anonymously?

• What do you want to name your donor-advised fund? (Say, the “Henry and Susan Stevens Fund” or the “Red Rose Fund”?) This is important because nonprofits find it challenging to acknowledge gifts and build relationships with supporters if the donor-advised funds aren’t in a client’s name.

• How do you want to give every year? Do you simply want to respond to requests? Or do you want to make strategic grants? Or do you want to do a little of both?

• Do you want to involve family in your philanthropy? Are you interested in getting your children or grandchildren involved?

• Who would you like to name as your successor advisors and have you discussed your donor-advised fund intent with them?

• How much money would you like to give to charity every year out of your donor-advised fund?

• Would you consider investing your fund account in impact investments to align the investments with your mission and grant-making strategy?

Once clients have thought about these questions and are ready to get started with their giving, it may be prudent to add a philanthropic advisor to your team. This person can help your client create a comprehensive strategy and pursue effective giving. Such an advisor can also introduce clients to new charities, conduct due diligence, blend their philanthropy for maximum impact and help clients understand the integration of lifetime and legacy giving. Many donor-advised fund providers, like the American Endowment Foundation, Schwab Charitable, Fidelity Charitable and the National Philanthropic Trust, allow philanthropic advisor fees to be paid out of the donor-advised funds, the same way they are from private foundations.

As clients venture into giving, here are some helpful practices:

• Set an annual calendar for giving, noting how often your clients would like to designate grants throughout the year.

• If your client is including family or friends (or others) in the effort, establish a giving committee, and set an annual meeting among spouses, families and other involved parties to make sure there is dedicated time to discuss the philanthropy.

• Encourage your clients to get involved with the issues and organizations they are interested in supporting. Clients should “go beyond the check” by developing relationships and engaging in partnerships with organizations.

• Send brief “memorandums of understanding” to the charities. This establishes what they can expect from your client—and communicate how and when the client would like to be acknowledged and what kind of follow-up reporting or information clients would like to receive from the charities. These details are not included in the grant award letter that accompanies the check. The memorandum is both a more personal way to support an organization and provides an opportunity to establish certain accountability parameters, particularly if the gifts are made in more than one year.

• If clients want to make a bigger impact, you should discuss the best way to align their investments with their giving mission. Some donor-advised fund providers, like Impact Assets, allow the funds to hold impact investments. That allows donors to preserve and grow their giving dollars while optimizing their social and environmental impact, aligning their investments with their grant mission and strategy.

• From time to time, have your clients review their mission, vision and strategy. You must remain nimble to respond to changing needs from the charities your clients support. If new family members are joining in the donor-advised fund giving, incorporating their voice and interests in the mission and strategy will be critical.

Advisors have a unique opportunity to ensure that their clients have the tools and resources they need to maximize the strategic impact of contributions from their donor-advised fund. If you seize this opportunity, you will naturally deepen and enhance your relationships with clients and serve as a bridge to the next generation of clients.  

Betsy Brill , an internationally recognized expert in philanthropy, is president and co-founder of Strategic Philanthropy, Ltd., in Chicago. She will be speaking at FA’s Invest In Women conference in April.

Maureen Johannigman is a senior advisor at Strategic Philanthropy.