Terry Terry, Director, Partnership Firms for American Endowment Foundation, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss how donor-advised funds can benefit investors, advisors, and charities.
American Endowment Foundation has been operating since 1993, with assets under administration around $7 billion covering 15,000 funds. Since inception, donors have contributed $11 billion, but assets at AEF don’t necessarily grow, as donors are encouraged to use fund assets for charitable grants. In 2023, AEF’s donor-advised funds granted $1.2 billion to over 22,000 unique charities.
Donor-advised funds allow investors to make charitable donations at the best time to maximize the tax benefits. Investors receive larger deductions when donating highly appreciated investments, which can be common when markets are trading near all-time highs. Assets in the fund can be donated to any IRS qualified charity (501(c)3) any time the donor chooses.
Donor-advised funds are the most popular and fastest growing method of charitable giving. These funds are easy to set up without cost and are flexible enough to receive almost any type of asset, including cash, publicly traded securities, private investments, and physical real estate. While private foundations are decreasing in popularity, donor-advised funds now number over two million. Private foundations are required to file tax returns that are disclosed to the market. Donor-advised funds provide some anonymity, as the assets of many funds are held by a single foundation.
American Endowment Foundation is completely independent, as it isn’t owned by a fund company and doesn’t offer fund products. Advisors who work with AEF to establish a donor-advised fund can benefit from the open architecture that allows advisors to continue to manage the assets using any discretionary strategies or funds they choose. Donor-advised funds can also help advisors create a connection with the next generation, hoping to reduce the 80% to 95% probability of losing the relationship once the assets have been inherited. When the parents name one or more of the children as successor donor advisors, the advisor has the opportunity to continue the relationship with the next generation of the family.
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