Succession Success

What happens to a donor advised fund when the donor dies? Many donors may not immediately consider this important question when they are establishing their giving plan, yet they should.

There are a host of questions: Whom should you name as successor advisors? Should you restrict grants after your death to be made in a specific field? Is it better to leave the money to the full discretion of the institution that has custody over it? Or, as a donor, would you prefer distributing all that money during your lifetime?

To be sure, donors could designate that the money go to the discretionary endowment of the institution where the funds were deposited. But many donor advised funds -- and many other non-profit organizations that offer such funds -- also permit donors to name their children or other loved ones as successors advisors, enabling them to offer guidance on how that money should be given away.

If you believe it is important to teach future generations to give back, you might choose to pass your fund on to your heirs. Because of the option to name successors, donor advised funds -- vehicles that allow individuals to give money to a community foundation or another non-profit organization and then recommend how it is distributed -- have become a popular way for parents to teach children the value of giving.

If you decide you might want to pass on a giving legacy, it's important to learn about succession policies when opening a fund. While most donor advised fund programs permit the naming of successor advisors, there are a few that permit only one's children to act as successor advisors. Others require only that the successor be alive at the time of the transfer. After the successor generations pass, the fund becomes managed as part of the organization's unrestricted endowment, although grants can continue to be made in the name of the original donor.

By involving successors early in the process, donors can better plan how their fund will be used. Donors can give the successor generation instructions on how they would like their legacy sustained, but it is essential to make clear which is more important: that the successors have the power to advise, or that the money continues to be directed to certain causes. Otherwise, it may turn out that your successors may not agree with or understand your instructions.

Succession Success

Carla E. Dearing