What questions should a donor, couple, or family ask their advisors before setting up a donor-advised fund?
Before opening a DAF, donor families should talk with their trusted professional advisors about the benefits and tax implications. Professional advisors might include the family CPA or attorney, financial or estate-planning advisors, heads of family offices, or professional philanthropic advisors.
Donors can work together with their professional advisors to narrow down options for a sponsoring organization. Note that few advisors know the full range of DAF sponsors available and many have preferred sponsors based on how they’re compensated (or not) for managing the financial assets within the DAF.
Some donors give their professional advisor transactional access to their DAF to recommend grants and make donations on their behalf. Additionally, some sponsor organizations work exclusively with professional advisors (for donors who wish to outsource giving to their advisor).
Here are some of the most important questions to ask your advisor:
- What is the benefit to establishing a donor-advised fund?
- Do you receive any sort of fee or commission through the establishment of a fund at the sponsor organizations you recommend? Are there other financial incentives for using/recommending a particular DAF sponsor? If so, what are these incentives?
- What are the tax consequences, compared to establishing a family foundation?
- What are the tax consequences, compared to writing checks directly to nonprofits?
- Are there DAF sponsors that the advisor’s employer prevents you from recommending?
- How does a donor-advised fund fit within my family’s overall financial and estate plan?
- What types of investments and funds are available to me in the DAF Fund you recommend? Which are not available? (e.g. some won’t allow certain alternative investments, some only have in-house products, some won’t allow socially responsible investments or PRIs)
- When is the best time for me to start a donor-advised fund?
- What type of assets can I contribute to the donor-advised fund?
- How much should I contribute to the fund? How much should I give away each year?
- Which sponsor organizations do you already work with, and why?
- Will you be able to manage the investment of the funds held by the sponsor organization?
For Advisors: How to Start the Philanthropy Conversation with Clients
If you are the trusted professional advisor to individuals or families, you may have talked with your clients at some point about their philanthropy. Perhaps it’s a rushed fourth-quarter conversation to get some donations out the door. Or maybe it’s a conversation that has never come up. It is always advantageous to start the discussion early in the year so the clients have plenty of time to plan and do not have to rush at year-end.
Talking about philanthropy with your family clients is one of the best ways you can deepen your relationship and add value to the service you provide. You can introduce philanthropy into wealth management conversations, or bring in an experienced philanthropy advisor to co-facilitate the conversation.
Ask your clients and their family members:
History of Giving
- What kind of giver am I? Are we? What do we aspire to?
- What vehicles have you used, or are you using, for your charitable giving?
- At what times throughout the year do you typically give, and why?
- What motivates your giving? What issues do you care about or find concerning? What have you given to in the past?
- Do you have a close connection to a particular location or community?
Goals for Giving
- What’s the change you would like to see in your community or chosen cause?
- What is your Theory of Change?
- What specific goals do you wish to achieve with your philanthropy?
- What values or legacy do you wish to impart to your children and grandchildren?
- How will you involve your children, grandchildren, parents, grandparents or other family members in philanthropy?
Vehicles for Giving
- What philanthropy vehicles have you explored, and how?
- If you’ve explored donor-advised funds, at which sponsor organizations, and why?
- What are your biggest concerns when it comes to choosing a vehicle or more formalized structure for your philanthropy?
- How much time do you have or want to dedicate to your philanthropy?
- What do you value most in terms of a philanthropy or philanthropic vehicle? Examples include:
- Deep long-term engagement of the family?
- Perpetuity of the philanthropic vehicle?
- Working together as a board?
- To train the next generation about wealth and philanthropy?
- Ease and convenience?
- Flexibility in terms of payout and assets donated?
- Ultimate control of the assets?
- Anonymity versus openness?
- Low administrative costs?
- To be able to access and manage grants online?
- Access to grantmaking support and local expertise?
- To meet a specific goal (e.g., community-centric giving, international giving, or giving in another geographic area)?
- To network and/or partner with other donors or funders?
- Other values or needs?