Podcast Center
Video Center
Webcasts
Resource Center
Events
September 06, 2013 at 08:36 AM
Most people want to leave some sort of legacy behind, especially those clients whose assets warrant the use of an estate planner. But not all of them have the kind of assets that make sense for establishing a personal foundation or even a charitable remainder trust.
For those generous folks, there is always the option of a donor-advised fund, or DAF. A DAF manages donations on behalf of a charitable institution, and the donor is entitled to advise the sponsoring organization on how the money should be spent.
There are several common hangups associated with DAFs, though, and your clients may seek to avoid them or to pursue other avenues for their philanthropy. If you feel a DAF is well-suited for your client, here are some responses to help you get them to that place:
Concern: A DAF severely limits the options for my giving.
It’s true that most donor-advised funds can only give to IRS certified 501(c)(3) organizations, ruling out, for example, many small local charities. But there are more than 700 community foundations that sponsor donor-advised funds. The largest is based in, of all places, Tulsa, Okla., home of the $3.7 billion Tulsa Community Foundation. These community groups are actually how DAFs got their start.
A client can make a gift to one of these organizations with the request that it be used toward his or her favorite local charities. Or the staffers at a local foundation can be counted on to know which groups are doing the most good, are the most in need of donations, and are getting the most bang for the buck. More ambitious clients may be interested in actually helping to set up a new DAF at their favorite charitable organization.
Concern: I can’t be sure what the charity is going to do with my money.
Donors have long feared that DAFs end up making grants to pay their own expenses or that they give to charities where they themselves are the primary beneficiaries. After all, the donor gets to advise the fund on how the money is spent; his or her voice carries no weight beyond that.
See also: How to choose a reputable charity
In 2004, Iowa Sen. Chuck Grassley held Senate Finance Committee hearings that found donors using DAFs to pay for such things as utility bills and alimony payments, confirming many of the givers’ worst fears. But according to a report published last year in the Nonprofit Quarterly, this kind of thing has become much less of a problem in recent years. “This kind of abuse has subsided and, to the extent we can tell, is not tolerated among the corporate and community foundation DAF managers,” wrote Rick Cohen, the national correspondent for the Nonprofit Quarterly.
