A Donor Advised Fund, according to the IRS, is “a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization… . …Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.” Creating a Donor Advised Fund and then giving your appreciated stock to it has several additional benefits over other methods of giving.
Normally the process of transferring appreciated stock is tedious and time consuming. You have to contact the charity and ask if they have a stock liquidation account. You need to get the charity’s account number and Depository Trust Company (DTC) number. You need to send instructions to your custodian and then value the stock transferred by using an average of the market high and low on the day of transfer. Using a donor advised fund is much easier but requires some initial effort to set up the account.
While the funds owned by your Donor Advised Fund are no longer yours, there is some estate planning that can be done with your account.
At Schwab Charitable, you have the choice of four succession planning options which are triggered at the death, incapacity, or refusal to serve of the account holder(s). Those four options are:
1) Successors
The first option is that you can select people to be the new advisors for the assets. This would mean that those named individuals would be able to issue grants to a charity or charities of their choice.
This is not an inheritance. The Donor Advised Fund still owns the assets, and all assets must go to charity. However, the successor account holders would be permitted to advise Schwab on which charities to grant money.
2) Charitable Beneficiary
The second option is that you can select charities to which you’d like to leave assets. Those charitable organizations would then be the beneficiaries of your donor advised fund’s final balance.
And what’s more, these first two options can be used in combination. So you could leave 50% of the balance of your donor advised fund to specific charities and the remainder to your children for further donation.
3) Legacy Program
The third option is that you can pick charities to receive a recurring grant over a specific time frame. They call this option Schwab Charitable’s Legacy Program, and you can read more about it here .
This option requires a minimum account balance of $100,000 and through it you would pick a number of years (the “term”), an annual distribution percentage (minimum of 5%), and a list of charitable beneficiaries.
Through this option, Schwab will open a new Donor Advised Fund which follows your stated wishes. For example, giving 10% of the account to your church each year for 15 years or less.
The account will terminate with lump-sum grants if the balance falls below $5,000 or at the end of the term.
4) Default Option
Without a succession plan, any remaining assets are transferred to the Schwab Charitable Philanthropy Fund, Schwab Charitable’s unrestricted giving fund. This supports education, research, and Schwab’s charitable grants.
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