The July issue of the Sound Mind Investing newsletter includes an article about the one of the fast-growing charitable-giving vehicles: Donor-advised funds (DAF). There are many benefits to DAFs, such as the ability to take an immediate tax deduction for a donation while distributing portions of the donation over many years, the ability to invest the money placed in a DAF so that it could be a source of ongoing contributions to favorite ministries or other charities, and more.
The uniqueness of donor-advised funds also generates many questions. So, in this follow-up post, we’ll try to tackle some of the most common questions with the help of Michael King, Vice-President of Gift Planning Services at the National Christian Foundation (NCF). The organization’s Giving Fund is the largest donor-advised fund in the U.S. for Christian givers.
Who is the ideal prospect for a donor-advised fund?
A common misconception of DAFs is that they are only for people who have a large sum that they would like to donate all at once, such as a portion of an inheritance, an appreciated stock investment, or a non-cash asset such as a closely held business.
Those are all good uses of a DAF. However, Michael King said DAFs have much broader applicability. Many people do all of their giving through a donor-advised fund, which can simplify the giving process, aid in the collection of year-end charitable-giving receipts, and help ensure consistency of giving.
Let’s say you give $750 per month divided across your church and several other ministries. Giving once a month to a DAF and having it handle the multiple monthly distributions can save time (you’re just writing one check or having one monthly online transfer), help with year-end receipt organizing (The DAF sends you one receipt that tallies all of your giving), and ensure consistency of giving throughout the year (automating your giving means not missing any giving due to vacations).
With NCF’s Giving Fund, there is no required minimum amount for opening a DAF. However, there is a minimum monthly fee of $20.
How does NCF help facilitate giving non-cash assets?
Whether donating real estate, artwork, or a business interest, the NCF can help sell the asset, or in some cases, manage it as an income-producing asset. In order to facilitate these somewhat complicated forms of giving, the organization usually asks for a donation of 2% to 5% of the value of the asset.
How much control do you have over investment decisions?
If you have less than $300,000 in your DAF, you’ll have six “investment pools” to choose from, ranging from a money market fund to a pool with a 70% equity allocation. If you’re having the DAF distribute most or all of what you contribute to it each month, you would opt for the money market fund. On the other hand, if you fund you DAF with a sizeable contribution that you plan to distribute over time, it may make sense to have the money invested more aggressively.
Above the $300,000 level, you can place the money in a separately managed account and have your own investment advisor manage the money.
How much control do you have over how the money is distributed?
Since you’ve already given the money (to the organization operating the donor-advised fund), technically your role now is to recommend how the money is distributed. While King said it would be extremely rare for the NCF to deny a donor’s wishes, as a Christian organization, it will not approve grants to organizations that operate in ways that are antithetical to Christian values, such as Planned Parenthood or churches that perform same-sex marriages.
How can you make sure your intentions are carried out after you die?
There are a number of options here. Some donors specify that upon their death, the balance of their DAF should be fully distributed to specific ministries or other charities.
If you intend for your DAF to continue after your death (whether in perpetuity or for a certain number of years), you should specify in writing who is authorized to recommend grants and any restrictions on the types of ministries or other charities that are to eligible to receive funds. The DAF could also be converted into a legacy fund in which the NCF is given more control over distributions. Lastly, consider naming your DAF in your will or trust as a recipient of some of your assets after your death.
What other questions do you have about donor-advised funds? Or, if you use one, what’s been your experience?