Why Some Advisors Establish Donor-Advised Funds Now and Fund Later

As an advisor, you may find yourself helping clients navigate the timing of opening a donor-advised fund (DAF). One approach that some advisors advocate is the “open now, fund later” approach. This method ensures the fund is established and ready to receive contributions when the time is right, giving clients the flexibility to fund it on their own terms.

The rationale behind this approach is simple: it’s always better to have the DAF set up and ready to grant than to scramble when an opportunity arises.

So, when is the right time to open and fund a DAF?

Here are seven common moments when advisors recommend opening a DAF early and funding it later.

1. For placeholder funds in strategic planning.

Opening a DAF early allows donors to set up a placeholder fund for future contributions, ensuring the DAF is ready to be funded when the ideal time arrives, usually within a few months.

2. When immediate funding doesn’t align with current financial goals.

If immediate contributions to the DAF don’t align with other financial goals, delaying the funding could optimize tax benefits or coordinate with significant financial events, like the sale of a business, receipt of a bonus, or other influx of income.

3. To avoid delays during Giving Season.

With increased giving activity during the last three months of the year, opening a DAF earlier in the year helps avoid delays and ensures donations are processed smoothly during the busy Giving Season.

4. When timelines align with asset donations.

Different asset types such as cash, publicly traded stocks, real estate, and illiquid assets (privately held stock or cryptocurrency) have varying donation timelines to not only process but could also have value fluctuations. Opening a DAF early ensures assets can be donated at the most opportune time for both impact and tax efficiency.

5. For legacy funding in estate planning.

Establishing a DAF as part of estate planning allows for legacy giving and tax-efficient charitable contributions, whether funded now or after the donor’s passing.

6. When ongoing investment management is needed.

After a client’s passing, a DAF ensures continuity in charitable giving. Advisors can work with the family to manage DAF assets, maintain the charitable giving strategy and preserve advisor-client relationships during a time of transition and uncertainty.

7. For greater flexibility in selecting grantees.

A DAF offers flexibility in recommending charities over time. The “open now, fund later” approach ensures that clients retain flexibility in their charitable giving while still having the infrastructure in place to act when they are ready.

With so much to consider, work with your client to determine the best time to make the most of their charitable giving.

For more information about DAFs or future giving, please contact us or call 1-888-966-8170 with any questions.