When I started a new role in fundraising, fresh out of college, the organization I worked for received a generous donation from one of our regular contributors through his donor-advised fund (DAF). We processed the check, thanked him, and kept moving forward with business as usual. No one paused to ask about this new charitable vehicle or its implications for our work.
A decade later, not much has changed. Though donor-advised funds have exploded in popularity over the past 10 years, the fundraising world has been slow to realize their potential.
With assets of more than $100 billion already earmarked for charity, DAFs represent a remarkable fundraising opportunity for nonprofits.
A new proposal by the Initiative to Accelerate Charitable Giving seeks, among other reforms, to impose new regulations on DAFs. Nonprofit leaders should be wary of the proposed changes. Regulation could inadvertently slow and stifle this flexible charitable vehicle, adding new administrative fees and other burdens that ultimately reduce the dollars given to charity. Before rushing to regulate, nonprofit fundraisers—and the public—need better information on these vehicles.
Under current regulations, anyone can contribute to a DAF and receive an immediate tax benefit. A contribution might be cash, stocks, or illiquid assets. The money in a DAF can only be used for charitable purposes, and the donor loses legal ownership of the funds. However, donors can advise on where the funds should be distributed when they find a charity that they would like to support.
The proposal from the Initiative to Accelerate Charitable Giving—often referred to as the “Arnold-Madoff proposal”—seeks to remedy the problem of funds sitting in DAFs indefinitely. To unlock these dollars, the Arnold-Madoff proposal suggests creating two types of DAF accounts: a 15-year DAF, which preserves the current tax incentive structure but mandates that funds be distributed within 15 years, and an Aligned Benefit Rule, which allows for a longer time horizon but only confers an income tax deduction once the funds have been distributed.
Read the full article about nonprofit organizations and DAFs by Emily Koons Jae at Philanthropy Daily.
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