Leveraging Donor Advised Funds (DAFs) to Curb the Generational Wealth Transfer Impact on AUM
According to Forbes magazine, an estimated $84 trillion is set to change hands over the coming decades. Financial advisors face a critical challenge – retaining AUM while guiding clients through the Great Wealth Transfer with meaningful, multi-generational planning.
Donor advised funds may be the answer.
As a financial advisor, you play a pivotal role in guiding clients through the complexities of wealth management and inheritance planning. One powerful yet underutilized tool at your disposal is the donor advised fund (DAF). Beyond its tax advantages and philanthropic benefits, a DAF can prepare younger generations to responsibly manage inherited wealth, strengthen family bonds, and secure long-term client relationships.
DAFs can address the challenges of generational wealth transfer, foster deeper client engagement, create lasting legacies, and facilitate asset retention.
The Challenge of Generational Wealth Transfer
The proverb “shirtsleeves to shirtsleeves in three generations” highlights a stark reality:
- 70% of family wealth is lost by the second generation.
- 90% by the third, often due to unprepared heirs and poor financial stewardship.
- 84% of assets leave the original advisor’s management when inherited.
DAFs offer a solution to both preserve wealth and retain clients by involving heirs early, fostering financial literacy, and aligning families around shared values.
The Power of Donor Advised Funds
Donor advised funds (DAFs) are a versatile tool that address wealth dissipation while enhancing your role as a trusted advisor. Here’s how:
- Educational Opportunity: Managing a DAF gives hands-on experience in financial stewardship. Heirs learn investment management, budgeting for charitable grants, and evaluating the impact of their giving, equipping them with skills to handle larger inheritances.
- Instilling Philanthropic Values: DAFs encourage heirs to engage in charitable giving, fostering a culture of responsibility and positive social impact. This ensures wealth is used purposefully, aligning with family values.
- Tax and Estate Benefits: DAFs offer immediate income tax deductions, avoid capital gains and estate taxes, and allow assets to grow tax-free, maximizing resources for philanthropy.
- Promoting Family Unity: Regular family meetings to discuss DAF management strengthen communication and align members around shared philanthropic goals, fostering unity.
Tip: Advisors who engage the full family – not just the primary wealth holder – are best positioned to retain assets during generational transfers. Family–wide engagement is a key pillar to long-term AUM retention.
- Retaining Client Relationships: By involving heirs in DAF management from an early age, advisors build trust and loyalty, increasing the likelihood that heirs will retain you to manage both charitable and inherited assets.
Deepening Client Engagement
DAFs are more than a financial tool; they’re a gateway to meaningful family conversations about values and legacy. Facilitating family planning meetings, whether in your office or during family trips, creates a space for open dialogue. These discussions go beyond logistics (the “what,” “when,” and “how much”) to explore the “why” of family wealth.
Helping families articulate their philanthropic vision—often for the first time—reveals shared passions and differing priorities, enabling you to craft a unified “Family Mission Statement.” This process strengthens family bonds and positions you as a trusted advisor who adds unique value, reducing client attrition as heirs remain loyal to you.
Tip: Connecting with heirs and involving the broader family is one of the most effective ways to retain AUM.
Simple to Implement, Powerful in Impact
To understand how DAFs work, explore the basics here.
To integrate DAFs into estate planning:
- Educate Clients. Highlight the DAFs’ tax benefits, philanthropic impact, and educational value for heirs.
- Customize Strategies. Tailor DAFs to clients’ financial and charitable goals, including investment options and contribution schedules.
- Involve Heirs. Encourage age-appropriate participation in DAF management to build financial acumen and family unity.
- Monitor and Adapt. Regularly review the DAF’s performance and adjust strategies to align with evolving needs.
Tip: Coordinating with the client’s full advisory team – including attorney and CPA – is a smart move that supports both client goals and asset retention.
DAFs in Action: Protecting AUM with Real Results
Client: Martha
- 84-year-old widow
- four children
- twelve grandchildren
- $900,000 DAF
Guided by her financial advisor, Martha held bi-annual family meetings. Grandchildren aged 8 and older were tasked with researching and recommending a charity for a grant. They presented their choices recently with a creative twist.
At one memorable meeting, 12-year-old Sarah acted out her choice – the Statue of Liberty Foundation. By wrapping herself in a bed sheet and holding a light bulb aloft, mimicking the statue, her presentation, inspired by her curiosity about immigrants’ journeys, sparked family engagement and pride.
These meetings not only taught Martha’s grandchildren about giving but also created cherished memories and a shared sense of purpose. Her advisor, by facilitating these discussions, earned the trust of her heirs, ensuring continued management of both charitable and inherited assets. Martha’s DAF became a vehicle for a legacy that transcended wealth, rooted in family values and unity.
Breaking the “Shirtsleeves” Cycle
DAFs combat wealth dissipation by:
- providing structured stewardship
- encouraging long-term thinking, and
- building financial acumen.
By involving heirs in managing charitable assets, advisors prepare them for responsible wealth management, ensuring wealth endures across generations.
Tip: For advisors, DAFs enhance client relationships, reduce attrition, and position you as a steward of both financial and familial legacies.
Final Thoughts
Donor Advised Funds are a transformative tool for navigating the upcoming Great Wealth Transfer. By fostering financial literacy, philanthropy, and family unity, DAFs help preserve wealth and strengthen client relationships. As Martha’s story illustrates, DAFs can create lasting legacies that go beyond monetary value.
Tip: Advisors who leverage DAFs not only add significant value for clients but also secure their role as trusted partners for generations to come.
Obtain your free copy of The One Page Legacy Plan, a guide on using DAFs, by iGiftFund Founder and Chairman, Phil Tobin. This resource complements your advisory services in building family legacies.
Contact iGiftFund – Our experienced professionals are here to assist and provide insights on seamlessly integrating DAFs into your practice.
This information contained in this article is intended solely for educational purposes.
The content is not intended, and shall not be construed as professional advice (or a substitution for) including but not limited to legal, financial, tax or any other professional interpretation.