Willaim N. Kirk, Attorney
At this point, I suspect most advisors usually recommend the use of a donor advised fund instead of a family charitable foundation for their clients.
The simplicity and other advantages of the current formation of a donor advised fund versus the formation of a charitable foundation are often compelling. However, during the past several months, I have learned that these advantages may be just as helpful when structuring estate plans that contemplate a future charitable intent.
I have had several clients that wanted to structure their estate plans to provide for the creation of a trust for the benefit of a close friend or relative for the rest of his or her life but upon that person’s death the remaining assets of the trust were to be held in a fund focused on charitable works. While this request sounded simple enough when first expressed by the client, as I pondered the possible actions that would be required to bring the client’s charitable desires to reality upon the death of the client’s friend or relative, numerous issues surfaced. First, as the trust for the close friend or relative was to liberally allow invasions of principal, would the remaining trust assets be sufficient to justify the trust’s continuation as a charitable trust.
Second, who or what entity would be willing to serve as trustee of this charitable trust which may not come into existence for decades. Finally, significant administrative expenses may be incurred upon the death of the friend or relative to secure an application for exemption from income taxation for the charitable trust to be established at that time.
Fortunately, I shared my concerns with a member of the Professional Advisors Council for the Indian River Community Foundation, and he provided an extremely helpful recommendation. Rather than drafting a testamentary charitable trust to receive the remaining assets of the trust following the death of the friend or relative, instead provide for the creation of a donor advised fund upon that death or preferably, have the client create a donor advised fund now and direct the residue of the trust to that fund upon the death of the friend or relative.
This practical solution solved most, if not all, of the concerns that could arise in connection with the creation of a charitable trust upon the future death of the friend or relative. In addition, simply directing the remaining trust assets to a donor advisor fund was much easier for the client to understand and to integrate into the client’s estate plan. Finally, the use of the donor advised fund provided the opportunity for an introduction of my client to a representative of the Indian River Community Foundation so that the client’s charitable desires could be properly implanted in his or her new donor advised fund.