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12 Questions To Ask When Selecting A Donor-Advised Fund

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12 Questions To Ask When Selecting A Donor-Advised Fund

July 26, 2016

by Ken Nopar

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

With nearly 250,000 donor-advised fund (DAF) accounts in the U.S., there are numerous sponsors from which to choose: commercial ones like Fidelity Charitable and Schwab Charitable, independent sponsors like the American Endowment Foundation (AEF) and single-issue charity sponsors at religious organizations, universities and community foundations. There are approximately three times more DAF accounts than private foundations.

Because each DAF sponsor is different, it is critical that wealth, legal and tax advisors understand what their clients want to achieve with their charitable giving, whether they want to donate during their lifetimes and/or after their deaths, who will be involved and whether the clients want their advisors to be able to manage the assets in their DAF accounts. Only then can they help select the most appropriate sponsor.

Just like advisors evaluate different investment options for clients, they must also evaluate DAF sponsors to be sure that there is an ideal fit. Questions to ask while investigating different options include:

  1. Which types of grant recommendations will the DAF sponsor approve or not approve? While some DAFs will approve grants to nearly all 501©3 organizations, regional DAF sponsors may not approve grants outside of the local geographic area. Others may not approve grants to organizations that are not related to the mission of the DAF sponsor, and some cannot approve grants to charities based in other countries.
  2. Which types of assets can the DAF sponsor accept? Most will accept donations of publicly traded stock, while others may or may not accept contributions of more complex assets such as privately-held C or S corporation stock, LP or LLC interests, real estate, private equity or insurance. Be sure to check whether there are minimum sizes for these illiquid donations, as clients who want to donate a primary residence valued at $750,000 or vacation home at $400,000 will not be pleased to discover that a DAF has a $1,000,000 minimum requirement for real estate donations.
  3. Can the donor’s financial advisor manage the assets and at what amount? Only a few DAF sponsors including AEF permit advisors to manage at any amount, while others only allow this at $250,000 (Fidelity and Schwab) or $1,000,000 minimums, and some do not allow this at all. Some DAF sponsors only offer very few pooled investment options, while other DAF sponsors allow advisors to manage the assets similar to the way they manage their clients’ other assets.
  4. Is the DAF account portable or transferrable to another DAF sponsor? This is relevant should an advisor switch custodians or firms or if a client desires to make a change.
  5. Can the account continue in perpetuity? Many donors want their accounts to continue after their deaths and want to be able to name successor advisors, be they children, other family members, friends or advisors.
  6. What are the fee and timing details donors should know? Advisors should understand the fees for different size accounts (especially since many accounts will grow over time). They should also know the minimum amount required to open an account and minimum size of the grants, whether grants can be made online and scheduled in advance, the amount of time it takes to process and approve grant requests and the time required to establish an account (especially if there is a year-end request).

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Donor-Advised Fund

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