New York funders sign letter opposing restrictions on donor-advised funds

Several foundations and nonprofits in New York have signed on to a letter opposing a federal bill that aims to get donor-advised funds to pay out charitable dollars faster.

Donor-advised funds, also called DAFs, allow people to create accounts for charitable donations – for which they immediately receive tax deductions. There are no requirements that the funds be given out by a certain timeline, which, critics argue, can encourage donors to leave charitable dollars in accounts for years instead of being given away to nonprofits in a timely fashion.

The letter, spearheaded by the Jewish Federations of North America and the Community Foundation Public Awareness Initiative, criticizes legislation introduced by Sens. Angus King of Maine and Charles Grassley of Iowa. The Accelerating Charitable Efforts Act would allow donors to get an immediate tax deduction for putting money into a donor-advised fund if they distribute the charitable dollars within 15 years. Alternatively, donors can contribute to a donor-advised fund that allows them to put off distribution for 50 years. But that means they will not get an immediate tax deduction, though they would be able to still benefit from capital-gains and estate and gift tax savings.

Donor-advised funds managed by community foundations with less than $1 million wouldn’t be affected by these requirements. But those with more than $1 million at community foundations would only be able to receive upfront tax benefits if they pay out 5% of the funds annually or commit to distributing them within 15 years. 

According to the letter’s signatories, the legislation would reduce incentives for donors to use donor-advised funds and result in declines in philanthropic giving. It also points to an analysis from the National Philanthropic Trust that found donor-advised funds in overall paid out about 22% of their assets in 2019, exceeding legal requirements set for private foundations that they must distribute at least 5% of their assets annually.

The New York-based organizations that signed on to the letter include: the Community Foundation for Greater Buffalo, Adirondack Foundation, Long Island Community Foundation and Guardians of the Sick. View the full list of signatories here.