When is the best time to start a donor-advised fund?

Donors and families can establish a DAF at any time, through a number of different sponsor organizations. Sponsors typically require donors to submit an application, sign a fund agreement, and make a minimum contribution. Minimums can be as low as $5,000, although many start at $25,000 (and sometimes more). Once donors start a fund, the sponsor organization does all the back-end work— performing the necessary due diligence or vetting of potential grants. managing investments, keeping records, administering grants, and providing tax receipts.

To find out the right time to start a DAF, every donor and family needs to consult a trusted professional advisor. A professional advisor could be an accountant, an attorney, the head of a family office, a wealth advisor, or a philanthropic advisor.

Some professional advisors discuss philanthropy as part of a larger conversation on estate or long-term financial planning. On other hand, many professional advisors take the lead from their clients, and may not mention philanthropy if you as the client don’t bring it up. Be sure to initiate the philanthropy conversation if your advisor fails to do so. Typically, a conversation like this will take place before, during, or after a life transition: a marriage, divorce, death of a spouse or family member, the birth or adoption of a child, or retirement. Other times, it comes up when there is a specific wealth event: the sale of a business or real estate, an inheritance, or when the donor elects to transfer appreciated stock or shares to the sponsor to obtain an immediate tax deduction. During these wealth events, individuals and families may feel more compelled to set up a structure for their philanthropy, such as a donor-advised fund, for tax purposes, charitable reasons, or both.

Next in the DAF Guide: What are examples of the principal uses and benefits of DAFs?