How to Designate Your Donor Advised Fund as a Beneficiary of Your IRA

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After your own family, the first beneficiary idea that many people think of is leaving assets to charity. If you do decide to leave your estate to charity, you may consider utilizing a Testamentary Donor Advised Fund. A Donor Advised Fund is a 501(c)(3) in its own right and can send its assets on to other charities.

There are at least three advantages of a Donor Advised Fund (DAF) in this case.

First, if you ever change your mind, changing which charities receive the funds is simple. With a Donor Advised Fund, free paperwork can be utilized to implement the changes rather than more estate attorney fees.

Second, it is easy for your executor. Once the assets are given to the fund, the DAF’s custodian will handle the liquidation and valuation of the assets, contacting the charities, and gifting the cash. Much easier for your executor.

Third, you can optionally designate contingent directors. So, for example, you can leave the assets to charity via the fund but let your good friend be a director and decide which charity receives the funds. This could be a way to honor an important person in the estate without leaving them a pile of money.

Also, some savvy investors with charitable estate intentions decide to leave their traditional IRAs to charity, because the charity’s tax privileged status means that they can ignore the tax owed distributing those assets, while leaving other assets such as Roth IRAs which are post-tax or taxable accounts which receive a step-up in cost basis to family.

For this reason, sometimes you want to set up your Donor Advised Fund directly as a primary or contingent beneficiary designation on your retirement account. This is simply accomplished by writing the name of the Donor Advised Fund along with the account number in the Name or Organization Name of the Update Beneficiary Designation form.

For example, if you want to designate a Schwab Charitable Donor Advised Fund, you would fill out the form this way:

  • Name: Donor Advised Fund of {Names} (Schwab Charitable Fund, Account Number: {Account Number})
  • Address: 211 Main Street, San Francisco, CA 94105
  • Relationship: my Schwab Charitable Fund
  • Social Security: 311-64-0316

If you ever want to remove the Donor Advised Fund from your beneficiary designations, it would be as simple as filling out and submitting a new Update Beneficiary Designation form.

If you ever want to change which charities receive money after your death from the Donor Advised Fund, that is as simple as filling out and submitting a new Schwab Charitable Update Donor-Advised Fund Account Information form.

Estate planning is both an important way to meet your wishes and also achieve family harmony during a difficult time. You may or may not want to leave anything to your favorite charity. However, if you do, there are often advantages to using a Donor Advised Fund over designating the charity directly.

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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.