“Many wealthy people are turning to donor-advised funds (DAFs) to assist with their charitable efforts,” Mark Cussen writes in Investopedia.The “big deal”? Donors can take a current tax deduction for their contributions at the time they are made, but the money does not need to be dispersed to a charity until later. On the administrative end, “DAFs help simplify the process, because many donors’ contributions are consolidated into a single 501©(3) account.
In essence, both donors and DAFs stand to benefit from the arrangement:
Donors – While the donation is irrevocable, the tax deduction happens in the year of the contribution. The assets grow tax-free inside the DAF, buying time for the donor to decide on the ultimate recipients.
DAFs – Donor-advised funds charge management fees to donor accounts; charges may also be assessed by the mutual funds in which the donors invest.
“One of the foremost benefits of utilizing a DAF in estate planning is its educational potential,” the iGiftFund explains. As younger family members become involved in the management and distribution of the fund, that not only helps them develop financial skills but reinforces the importance of giving back to society.
Since charitable planning is inextricably related to our clients’ overall estate planning, donor-advised funds are one of the many important tactics we include in our discussions at Geyer Law. But, whether or not a charitable plan is the topic under discussion, family conferences help acquaint the younger generation with the members of their parents’ advisory team. Not only will this make settling parents’ affairs much simpler later on, but, even more important, allows parents to openly share with loved ones the values and assumptions – along with the issues – that have gone into their estate planning choices. While, even bringing all the adult children and involving them in the conversation may not eliminate sibling rivalry, the likelihood of legal disputes after the parents’ deaths is diminished.
Although, at the very beginning of this article, I quoted Mark Cussen as saying “many wealthy people are turning to donor-advised funds…”, at Geyer Law we do not consider DAFs to be exclusively for the “wealthy”. Whether donating now, designating later is the plan or donating a little at a time, many of our clients find meaning in making very modest donations of stock or cash to DAFs; many encouraging their children to participate in the process.
– by Rebecca W. Geyer
