What Happens to a Donor-Advised Fund at Death?

A donor-advised fund, or DAF, is a charitable giving account you establish at a public charity known as a sponsoring organization. It functions like a personal investment account dedicated to your philanthropy. You contribute assets like cash or appreciated securities into the fund and can receive an immediate tax deduction for the contribution. These contributions are irrevocable and cannot be returned to you once placed in the DAF.

The funds within the DAF can be invested, allowing the potential for tax-free growth over time, which can increase the total amount available for charitable giving. Throughout your lifetime, you act as the advisor for the account, recommending grants to qualified 501(c)(3) charitable organizations. This structure allows you to separate the timing of your tax deduction from the actual distribution of funds to charities, providing flexibility in your giving strategy.

Naming Successor Advisors

Upon the death of the primary donor, a donor-advised fund can continue its charitable mission through the appointment of successor advisors. A successor advisor is an individual or group designated by the original donor to take over recommending grants from the DAF, extending the donor’s charitable legacy. The role of the successor is purely advisory; they do not own the assets but have the privilege of directing where the funds are distributed.

Eligibility to become a successor advisor is determined by the policies of the sponsoring organization. Donors can name their spouse, children, other relatives, a close friend, or a trusted professional advisor.

Sponsoring organizations offer different structures for this succession. A donor might name a single individual to take over the entire fund or appoint multiple successors, such as all of their children, who may be required to make grant recommendations jointly. Some DAF providers permit the original donor to split the fund into separate DAF accounts upon their death, with each successor advisor managing their own portion. For instance, if a donor has multiple children with different charitable interests, splitting the fund can empower each of them to pursue their own philanthropic passions.

Designating Charitable Beneficiaries

An alternative to appointing individuals is to name one or more charitable organizations as the beneficiaries of the remaining balance. This option provides a definitive and final direction for the DAF assets upon the donor’s death, ensuring specific causes the donor cared about receive a final contribution.

This distribution can be structured as a final, lump-sum grant to a single qualified public charity. For example, a donor could direct the entire remaining DAF balance to an institution like a local hospital or university. The sponsoring organization liquidates the DAF assets and issues a grant to the designated charity as a final act for the fund.

Many donors choose to support multiple organizations by allowing the remaining balance to be split. A donor can specify the percentage of the fund that each named charity will receive. For instance, they could allocate 50% to a national health organization, 25% to a local arts museum, and 25% to an environmental cause.

A more enduring option is to use the DAF assets to establish a named endowment with the sponsoring organization or another public charity. An endowment is a permanent fund where the principal is invested, and a portion of the investment earnings is used to make annual grants in perpetuity. This creates a lasting legacy in the donor’s name.

The Process for Establishing Your Succession Plan

To formally establish a succession plan, the donor must first gather specific information. If appointing a successor advisor, this includes the individual’s full legal name, their relationship to the donor, and current contact information. For designating a charitable beneficiary, the required details are the organization’s official legal name, its physical address, and its Employer Identification Number (EIN), which is a unique nine-digit number assigned by the IRS for tax purposes.

With the necessary information, the next step is to locate and complete the succession plan designation form. Donors can find this document within their online account portal on the sponsoring organization’s website, often located in sections labeled “Account Details” or “Succession Planning.” The form will have specific fields where the donor enters the previously gathered information for their chosen successors or charitable beneficiaries.

When splitting funds among multiple charities, the donor must specify the exact percentage of the remaining balance designated for each organization, ensuring the total allocation equals 100%. Once the form is fully completed, the final action is submission. Most sponsoring organizations allow for electronic submission, though some may provide an option to print, sign, and mail the form.

Outcomes Without a Succession Plan

When a donor-advised fund holder dies without a formal succession plan in place, the fate of the remaining funds is determined by the default policies of the sponsoring organization. These policies are outlined in the legal agreement the donor signs when opening the DAF account. Without explicit instructions from the donor, the sponsoring organization acts according to its established procedures.

The most common default scenario is that the sponsoring organization absorbs the remaining assets into its own general charitable fund or unrestricted pool. These funds are then used to support the organization’s own philanthropic mission and grantmaking programs at its discretion. While the funds are still used for charitable purposes, the original donor loses all control over which specific causes or organizations will benefit.

These default policies can vary significantly from one sponsoring organization to another. Some may have a policy to automatically pass advisory privileges to a surviving spouse, even without a formal designation. Others may have a specific charitable field of interest they support with unclaimed funds. To avoid an undesirable outcome, donors should review the governing documents of their DAF provider to understand the specific default rules for their account.