Testamentary Donor Advised Funds

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Testamentary Donor Advised Funds


I have several charities I want to support through my estate at my death and I’m considering how to write them into my estate plan. What is the best way to do this? What if I change my mind or the dollar amount changes – will I need to hire my lawyer again to re-write my estate documents?

An easy workaround is to set up a Donor Advised Fund as a Testamentary fund, meaning you aren’t funding it yet, but it will be funded upon your death.

Enter the names and information of the charities you want to support as beneficiaries of the fund and the percentage each should receive of the total account value once the account is funded. Write “Testamentary Donor Advised Fund” at the top of the paperwork so the custodian knows you aren’t funding it yet, but you will later. Then, when your account is open and you have the account name, number, and the information of the custodian where you opened the account, you are ready for the next step.

You can then decide where you want the assets to come from: an IRA, a trust, or a portion of your assets via a will. For an IRA, you can directly list your Donor Advised Fund as a beneficiary which means it will automatically inherit the percentage of assets you choose.

For a trust or will, you can have your lawyer draw up the document to include a percentage of assets or a dollar amount for the fund to receive after your death. Then when you die, the assets will transfer to your fund and the fund will distribute checks to the charities of your choice in the percentages you designated.

It can be a good bit of work to contact multiple charities and make sure they receive their gifts, so setting up a fund this way makes giving to charities easier for your heirs. Your executor will make sure the assets reach your Donor Advised Fund and the fund’s custodian does all the work of selling the securities, generating cash, and sending the cash to the charities.

If you change your mind about what charities you want to support, you can update your Testamentary Donor Advised Fund’s beneficiaries to add, remove, or change the percentages. This can be done at any time and you won’t have to re-write your entire estate plan or re-draft instructions to your executor.

Even though an account may be set up as a Testamentary Donor Advised Fund, you can also start using the fund during your lifetime if you wish. The use of a Donor Advised Fund during your lifetime means you can give money away now and setting up charities as beneficiaries means they will receive a percentage of the assets in the account upon your death.

Some people choose to make their children the successor owners of their Donor Advised Fund, which means they can direct the charity or charities the funds will go to if you want to give them the opportunity to choose causes to support.

Testamentary Donor Advised Funds can streamline the process of giving money to charity as part of your estate plan and your executor will be grateful for an easier way to settle that part of your affairs.

Photo from Shari’s Berries used under Flickr Creative Commons license.

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Wealth Manager

Austin Fey is a Wealth Manager at Marotta Wealth Management, specializing in charitable giving and asset allocations. She is a regular contributor to our Marotta On Money articles, often giving advice to those just getting started in finance.

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