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Donor Advised Funds and Community Foundations

Posted on February 16, 2017 by Mark Neithercut

Over the last few months, there has been an interesting discussion taking place about the role of Donor Advised Funds and their impact on the nonprofit sector. An article in the New York Review of Books[1] vigorously argued that these funds have negatively impacted the charitable sector because the billions of dollars sitting unspent in DAFs would be helping people and creating change if they had gone directly to public charities.  That is, the donor has received his/her tax benefit, but the public benefit that is expected from a charitable gift has yet to come — and may not, in fact, come for many years.

The Nonprofit Quarterly[2] also jumped into the discussion, reminding us that wealthy donors often create private foundations and thereby gain tax benefits when only 5 percent of the assets are distributed each year.  Aren’t DAFs just like little private foundations, and shouldn’t the rest of us have the flexibility to let our DAFs grow tax-free like the private foundations, eventually able to distribute a larger amount and thus having greater impact?

I am reminded of this issue now as we began to hear anecdotal evidence of increased or accelerated giving late in 2016. Many donors appear to have made anticipated 2017 gifts in late 2016 due to the expected changes in the income tax rates this year.[3]  In the case of our clients, many of these gifts have gone into Donor Advised Funds.

As I ponder this issue, I am reminded of one small but important byproduct of creating a DAF at your local community foundation. (The New York Review of Books article focuses solely on commercial gift funds.)  I have had a DAF at my local community foundation for 25 years now, and some years I recommend distributions and some years I do not.  Yet, no matter what my activity, the annual admin fee that is collected goes to support the operations of the community foundation.  My local CF has played a huge role in many civic projects and has provided significant community leadership for decades.  I gain a small amount of comfort knowing that no matter how active my DAF, it is in a small way supporting the work of my CF and, thus, my community.

Mark Neithercut

[1] Lewis B. Cullman and Ray Madoff, “The Undermining of American Charity,” New York Review of Books, July 14, 2016.

 

[2] Ruth McCambridge and Gayle Nelson, “Donor-Advised Funds: Charitable Limbo or Democratizing Giving Vehicle?” nonprofitquarterly.com, July 12, 2016. See also, Howard Husock, “Donor-Advised Critics Miss the Point About the Value of These Tools,” October 27, 2016, The Chronicle of Philanthropy.

 

[3] Drew Lindsay, “A Giving Room in 2017?” The Chronicle of Philanthropy, January 4, 2017.

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