What’s the right Donor-Advised fund for me?
If you enjoy giving to charities, ministries, or non-profits then you have probably heard the term “Donor-Advised Fund” or “DAF” for short. A DAF can simplify the giving process leaving you to handle other things that might require more of your time. Just like your favorite restaurant, not all Donor-Advised Funds offer the same experiences. You want to be aware of what is most important to you, and then use that as a guide when selecting a DAF. Be sure to align both your values and objectives to utilize the best possible provider, which is typically a Public Charity or Community Foundation.
It can be quite overwhelming when you don’t know where to start. There are several different things to consider, but the following 5 features will help you choose which DAF provider is the best fit for you.
- Community – What is your worldview and values platform? Is the provider of the DAF for, against or ambivalent toward your favorite charities? This is one of the most important aspects when choosing a DAF. It may be important to you to make sure that the organizations you want to help align with your religious beliefs. If being faith-based is a non-negotiable for you, then you should use a faith-based Foundation. They will make sure to vet the organizations you want to grant to, ensuring they are not operating in a way antithetical to your faith and values. Examples of prominent Christian Donor-Advised Funds are the National Christian Foundation and The Signatry.
On the other hand, maybe Environmental Responsibility is a top priority for you when choosing who will receive your granted dollars? If so, you want to make sure that the foundation you choose also feels the same way. Some of these organizations will require a set amount of your grants go towards charities of their choice so you want to make sure they align with your idea of conservation as well.
Maybe you want to grow your community and make a big impact on the
“hometown team”? If making a legacy in your community is important to you, find a
Foundation that focuses on local charities and open a DAF with them to utilize
their resources to give locally. In Kansas City, we are blessed to have multiple civic-oriented Community Foundations to choose from such as the Greater Kansas City Community Foundation or Truman Heartland Community Foundation. Some Foundations will even allow you to donate toward scholarships for local college-bound students. This can be a wonderful way to give back to the community and support growth in your hometown.
Do you have a heart for international giving, where the impact can be significant to an impoverished area? This often requires a lot of trust and accountability, so you want to make sure that your granted dollars are going to a charity that has been properly vetted. Most of us don’t have the ability to visit an international ministry and make sure they are legitimate. Being able to know that the Foundation makes sure your overseas grants are being properly routed and utilized can be comforting.
You may be a small business that wants to help support other small businesses. Or
maybe it is important to invest in businesses that are making an impact. If so, check out
Impact Foundation. An Impact Account lets you put your business and investing talents
to work on maximizing the impact of your charitable capital through investments in
transformational businesses and enterprising charities.
- Coordination – Which financial custodians are you already using? Many popular investing firms such as Fidelity, Schwab, and Vanguard have charitable Foundations you can utilize quite easily if you have an account there. It may be important for you to have all your investments in one place and reduce the number of log-ins you have to remember! A word of caution, make sure they will allow you to grant to the charities of your choice. They may deem certain ministries ineligible if they don’t meet certain guidelines.
Are you more old-fashioned and prefer to complete and sign paperwork in person,
or does the thought of doing everything digitally sound like a huge relief? This is something important to consider when choosing the Foundation for your DAF. You may be very busy and not have the time or ability to wait for paperwork in the mail. Some organizations require everything to be completed digitally and you never even have to leave your home.
If you plan to give away assets such as real estate, wheeled vehicles, or businesses, you will want to make sure that the Foundation is equipped and knowledgeable to handle these special circumstances. Do they have representatives available that have experience in making “outside the box” grants that can answer your questions? Or, are you forced to communicate with a chatbot with canned responses that may or may not be able to answer your concerns?
Are you a business owner? Another benefit of a DAF is being able to include your employees and family members in the giving with you. We allow our employees to grant to charities of their choosing in several ways through our Sound Stewardship Foundation. Our employee benefits include the opportunity to choose charities that will receive grants throughout the year. It is much better to give than to receive and our employees find great joy in sharing the different ways our grants have impacted both local and national charities.
- Contributions – Can they handle what you are most likely to donate? When thinking about making a grant or a charitable contribution, most people automatically assume this is a cash gift to your favorite non-profit. That is not always the case, as there are many other things you can use to grant. Publicly traded securities, cryptocurrency, small business interests, real estate, and event art are all non-traditional ways of giving that can have a significant impact.
If you will be donating something that requires an appraisal such as art or real estate,
you want to make sure they are knowledgeable in these fields so you can make
the most of your granting dollars. Your charity could miss out on huge amounts if they don’t know how to handle a complex transaction.
As with all contribution needs, be sure that they are providing appropriate receipts, which include lots of nerdy tax details that the IRS will want to see: like fair market value vs. deductible value, along with the cost basis of the asset you just donated.
- Custodian – What kind of investment opportunities can they provide for you? If you will be donating stocks, can you retain the donated security? Otherwise, you may want your investment to be diversified and have the ability to be combined to make a larger impact. Do they offer investment pools? Some Foundations may offer the ability for separately managed accounts to be handled by your trusted advisors.
Other things to consider are the fees involved with the Foundation you are choosing. There may be hidden expenses that could take away from your granting dollars. Finding an organization that is transparent with the fees associated with setting up your DAF and making grants from it is an important aspect of being a good steward. It can be frustrating to learn that a large portion of your potential investments is going toward fees – unless you know the organization and like how they’re using those dollars.
What are the minimums for contributions and grants? Does the Foundation you choose require a minimum amount to be contributed at a set time? Are you able to grant
however much you want to the charity of your choice or is there a guideline you will be
required to follow? There may be ongoing balance requirements you would need to
consider as well. Having guidelines in place may appeal to some, while to others it
may cause them to consider using a different Foundation for a DAF.
- Culmination – Can they support your financial and estate planning objectives? We know how important it is to have proper estate planning in place. It is crucial to make sure that the Foundation you choose can support your estate plan as well as your current financial plan when you have a DAF. The language will need to be inserted and updated into your estate planning documents that reflect your needs and wishes.
Will they offer a “Testamentary Fund”? If you know you want your resources to go through a DAF upon your death, but understandably can’t send them there just yet, you might look into this option. It allows you to have an account opened (but empty) with the Foundation, and then it will simply sit in a file cabinet until you pass away. Once the assets start rolling in, then the Foundation will direct your charitable dollars where you or your family wanted them to go.
Are you over 70 ½ years old with an IRA? If so, will they help you create a Designated Fund for your favorite charity to receive a Qualified Charitable Distribution from your IRA? This can come in handy if you would like to bless that charity with a large amount, but not all at once. The Designated Fund gives the dollars a “parking spot” while you’re waiting to dole out the grants for specific projects to the designated charity over time.
Can you share your balance with others and give them the gift of blessing others? Allowing someone to choose the charity of their choice can be empowering and spark a future generation to follow in your footsteps. We often use “Giving Certificates” as a giveaway to encourage others to seek out a non-profit and share a grant.
A DAF can be a wonderful tool to share your wealth in ways that make an impact. Utilizing the correct foundation to handle your DAF is crucial to the success of your legacy. A bit of legwork upfront will make sure they can handle what you want to give away and make sure they align with your worldview. That will save you a lot of frustration down the road.
If you want to learn more about how to set up a DAF or see if it is the right choice for you, reach out today to set up a short phone call with one of our advisors!< Back to Updates