In 2021, when two U.S. senators introduced the Accelerating Charitable Efforts Act to speed up the payout of funds from donor-advised funds, it was the first time many lawmakers became aware of the issue.

But the ACE Act was not the first major legislative battle over DAF reform. Before DAFs were debated in the halls of Washington, D.C., they were discussed in the halls of Sacramento.

In the months before the COVID-19 pandemic, Bay Area Assembly Member Buffy Wicks introduced two bills that would require companies and foundations managing DAFs to disclose key information about the accounts, including DAF “payout rates.” The idea was to see how much money sits idle in these accounts, data that could inform guardrails for an increasingly powerful but largely unregulated sector.

The bills met opposition from DAF sponsors and foundations, ultimately stalling. That could have been the end of the story. Instead, California’s then-Attorney General Xavier Becerra took the unprecedented step of moving forward on his own, systematically collecting information about the DAF landscape, setting an example for how other states might push for greater transparency even without legislation.

Now, as some advocates for DAF reform look toward any action that can be taken as they await the introduction of new federal legislation, they see state efforts such as California’s as central to pushing the issue back onto the federal stage – and a bellwether for future advocacy.

The role of attorneys general

Popular among the wealthy, DAFs provide donors with an immediate tax deduction for irrevocable contributions, while allowing donors to retain control over how and when the funds are distributed to working charities. There is no mandatory minimum annual payout for a DAF, and no set timeline for dispersing funds to charity.

Advocates for DAF reform focus on two major issues: speedier payouts from DAFs and greater transparency. Only Congress can mandate payout requirements, but states can push for transparency either through legislation or at the state attorney general’s request.

Jon Pratt, co-chair of The Philanthropy Project and former executive director of the Minnesota Council of Nonprofit, said that state-level legislation surrounding DAFs is possible, but can be a tough sell, as many legislators do not consider tax reform a state issue. (To date, Wicks’ bill has been the only legislation introduced)]

The more likely path, according to Pratt and others, is through the offices of state attorneys general. In the United States, these offices are tasked with protecting charitable assets, including funds held in DAFs (in some states, the Secretary of State’s office is granted this responsibility).

Read the full article on Proximate.