Donor-advised funds (DAF) have been around for nearly a century. They are accounts created by individuals at a sponsoring organization — usually a public charity — where the donor receives an immediate tax benefit for the donation, and retains an “advisory” voice in how those funds will be distributed by the sponsoring organization. Once a contribution is made to a DAF, the contribution is irrevocable, and the funds must be distributed at some time to a 501(c)(3) charitable organization.
The use of DAFs has developed into one of the most successful instruments in Jewish communal fundraising. Donors have the flexibility of “parking” charitable donations with, for example, a local Federation, and deciding later to which charitable entity (even if not Federation) money from the DAF should be directed. The amount of DAF funds in most communities is significant.
A recent bill sponsored by Sens. Angus King (I-Maine) and Chuck Grassley (R-Iowa), the Accelerating Charitable Efforts Act, could negatively affect both the popularity of DAFs and their positive impact on charitable giving. Among other things, the bill would require that DAF contributions be distributed within 15 years for the donor to receive a tax deduction for the donation. Under current law, no such time limit on distribution exists.
While we understand some of the objectives of the bill — principally to get funds distributed on a more expedited basis — the proposal ignores fundamental realities related to charitable giving, the value to communities of having DAF funds available for possible emergency needs and the multi-generational benefits of the use of DAFs.
Supporters of the bill, which include some charitable organizations, argue that the current model allows individuals to get a charitable donation tax advantage without ever actually distributing money to charity. But it is illogical for an individual to donate large amounts of money to a DAF and never actually distribute them, since there is no circumstance under which the funds will ever be returned to the donor.
On the other hand, the existence of DAFs presents a ready list of potential donors and funds for emergencies — such as was required to help with urgent local needs when the pandemic hit and to support and assist those in Israel affected by the Guardian of the Walls disruption less than two months ago, as well as similar emergencies that occur each year.
An analysis from Nonprofit Quarterly showed that DAFs gave away about 31% more money in 2020 than in 2019, likely in response to the COVID-19 pandemic. And Federation executives from around the country are quick to list the myriad uses to which DAF funds have been directed in their communities and beyond. It is therefore not surprising that more than 80 organizations, including The Jewish Federations of North America, signed a letter opposing the new bill. We join them in opposition.
Congress should encourage those who are able to maximize giving for the benefit of organizations and individuals in need. DAFs are a valuable charitable resource that should not be compromised.