As the number of donor-advised fund accounts has increased to 1 million, many clients and their advisors know that if they have not already opened one, they soon will. Though most clients make their initial donations when they open their DAF accounts, some fund the accounts several months later or even after their death.
Some who open the account but temporarily hold off on the initial donation may be waiting to receive a bonus or other compensation, sell or donate an illiquid asset, or wait until the optimal time to donate a stock or fund.
Since it can take time to open an account, it often makes sense to create the DAF account in advance and then be ready to quickly fund it at the appropriate time. These are known as placeholder funds. Should the advisor or donor wait for the ideal moment to open the account, the perfect time to donate the asset may have passed and the donor will have less to donate and therefore less to give away.
There is typically no charge to establish these placeholder funds, so if the advisor and the client agree that a DAF is a good idea but they are not sure when, how much, or even which asset to donate, they can complete the DAF application and open the account. These placeholder funds should be used only when clients are serious about opening a DAF account and anticipate that the funding will take place within several months.
Time can be of the essence when donating certain assets and opening accounts, so it is wise for advisors to open the accounts in advance, especially if they will use a DAF sponsor that needs to first approve that the advisor or firm can manage the DAF assets. If there are any delays in opening an account and donating the asset, clients will not be pleased if they learn that the account could have been opened earlier.
In addition, opening DAF accounts takes longer in the fourth-quarter peak giving season, so it is very important that advisors take the necessary steps in advance. Donating cash or publicly traded stock can be fairly quick at most times of the year, while donating privately held stock, real estate, cryptocurrency or other illiquid assets can take much longer.
And since timelines are usually longer in November and December, it is wise to start early so that advisors can avoid having to tell a client that it was too late for them to receive the tax deduction for the year.
