Donor-Advised Funds, by whatever name they may be called, have been gaining in popularity year after year recently as a philanthropic tool. However, there are a few things to think about when considering creating and using a Donor-Advised Fund.

It’s important to understand how a Donor-Advised Fund works. Once funds are contributed to a Donor-Advised Fund, the funds are no longer the donor’s funds. They are an asset of the organization that holds and administers the Donor-Advised Fund. This is the reason why the donor cannot direct the use of the funds in a Donor-Advised Fund and can only recommend the distributions of the funds as grants from the Donor-Advised Fund. And, the process of acting on the donor’s recommendations takes time – generally five-to-ten days. This can lead to delays in getting funds to the intended beneficiaries.

While the donor can only recommend grant distributions, experience offers comfort: As long as the intended cause is a legal and appropriate charitable organization, the Donor-Advised Fund’s administrator should be expected to follow the donor’s recommendations about distributions from the Donor-Advised Fund. If ever donor recommendations do not receive this deference, it’s not likely Donor-Advised Funds would continue to be as popular as they now are.

Another concern is the lack of transparency. Donors who contribute to Donor-Advised Fund can chose to remain anonymous. This makes it difficult at times for charitable organizations to know who is supporting their work via a grant from a Donor-Advised Fund. Donor recognition and stewardship efforts are challenged by this anonymity. Sometimes this is a good thing – especially for high profile donors who choose to support controversial causes via anonymous grants from a Donor-Advised Fund. Without the knowledge that the Donor-Advised Fund grant will be anonymous, some donors may be reticent to make the gifts they wish to make.

Also, some concern has been noted that a Donor-Advised Fund allows donors to take advantage of the tax-deductibility of transfers into a Donor-Advised Fund – receiving an immediate benefit of a federal charitable contribution tax deduction – while then storing these tax-advantaged fund indefinitely in the Donor-Advised Fund without any requirements regarding the ultimate distribution of the funds as grants to charitable beneficiaries.

While this concern may be technically accurate, the actual experience of donors and Donor-Advised Funds in recent years has shown that as donors are increasingly turning to Donor-Advised Funds as, essentially, their charitable giving check book, the number and size of grants from Donor-Advised Fund are growing larger and larger each year. This is wonderful news for all the charities that are benefitting from the receipt of Donor-Advised Fund grants.

Despite some concerns, it’s worth noting that Donor-Advised Funds are rightly becoming a strategy of choice for more and more individual and families at all levels of income and wealth. While family foundations may be the domain of the very wealthy, Donor-Advised Funds offer even those who have modest means a way to become creative philanthropists. It’s a most-effective way to carry out the charitable giving aspirations of individual and families – and, it just may be the right idea for you.

A Donor-Advised Fund offers you flexibility and convenience, allowing you to plan your giving over time. If you would like more information on how a Donor-Advised Fund may be right for you, contact Ted Sudol, J.D. at Athens Philanthropic. By phone 540.820.0246 and by e-mail at tjsesq@outlook.com.

tjs

(Reference partner ChatGPT)