What Happens to a Donor Advised Fund at Death?

A Donor Advised Fund (DAF) is a charitable giving account at a public charity, known as a sponsoring organization. Donors contribute assets like cash or securities and may receive an immediate tax deduction. These contributions are irrevocable and can be invested to grow tax-free, increasing the amount available for charitable giving.

Throughout their lifetime, the donor recommends grants from the account to qualified public charities. This structure allows the timing of the tax deduction to be separate from when the funds are distributed. A key consideration for any donor is what will happen to the remaining assets in the account upon their death. Establishing a succession plan ensures the fund’s charitable mission continues according to the donor’s wishes.

Appointing a Successor Advisor

A common method for continuing a fund’s charitable legacy is to appoint a successor advisor. This person is designated by the original donor to recommend grants from the DAF after the donor’s death. The successor does not gain ownership of the assets but is granted the privilege of directing where the funds are distributed, extending the original donor’s philanthropic impact.

To name a successor, donors complete a form provided by the sponsoring organization. Eligible successors are generally spouses, children, other relatives, or a close friend. A donor might name a single person, appoint multiple successors to act jointly or independently, or have the fund split into separate DAF accounts for each successor upon death.

Donors should also consider naming contingent successor advisors. These individuals take over advisory roles if the primary successor is unable or unwilling to serve. This prevents the fund from becoming directionless if the initial choice predeceases the donor or declines the responsibility.

Designating Charitable Beneficiaries

An alternative to an advisory role is to provide a final direction for the DAF assets by naming one or more charitable organizations as beneficiaries. The donor instructs the sponsoring organization to distribute the entire remaining balance to specified charities upon their death. This effectively closes the DAF after a final grant is made.

This distribution can be a single, lump-sum grant to one qualified public charity. Many donors choose to support multiple organizations by allocating the remaining balance by percentages on the designation form. For instance, a donor could direct 50% of the fund to one charity, 30% to another, and 20% to a third.

A practical consideration is what happens if a designated charity no longer exists or has merged at the time of the donor’s death. Sponsoring organizations’ policies on this vary, but the DAF’s governing documents will specify a default action, such as granting the funds to a charity with a similar mission. Donors can also name a contingent charitable beneficiary for each primary designation.

Establishing a Permanent Endowment

A donor may convert their DAF into a permanent endowment upon death, creating a named fund that makes grants in perpetuity. The principal is invested, and a portion of the annual investment return, often around 4-5%, is used for grants each year. This ensures consistent support for the charitable causes specified by the original donor.

This option is not universally available and is typically offered by larger community foundations or sponsoring organizations with endowment programs. There are often specific requirements, most notably a higher minimum balance. Establishing an endowment could require $50,000, $100,000, or more, depending on the sponsoring organization’s policies.

The donor works with the sponsoring organization to create a fund agreement that outlines the endowment’s purpose. This document can specify particular charities to receive annual grants or define a “field of interest,” such as environmental conservation or arts education in a specific geographic area.

Consequences of No Designation

When a donor dies without a formal succession plan, the fund is often called an “orphaned” DAF. The fate of the remaining assets is then determined entirely by the default policies of the sponsoring organization, which are outlined in the agreement signed when opening the account. Without specific instructions, the sponsoring organization assumes full control.

The most common outcome is that the sponsoring organization absorbs the remaining assets into its own general unrestricted fund. The organization will then use these funds to support its own programmatic work or distribute them to charities according to its internal priorities. The failure to designate a successor or beneficiary results in a complete loss of the donor’s control over the fund’s charitable purpose.