The Senate Committee’s Recommendations in Regard to Donor Advised Funds

Senator Omidvar was interviewed by Mr. Mezzetta from Investment Executive, in regard to donor advised funds (DAF). A DAF is an account within a registered charitable foundation, whether public or private, that is established when a donor makes an irrevocable donation to the foundation. The donor receives a tax receipt immediately upon making the donation, and receives administration and investment services from the foundation. Senator Omidvar suggests, the DAF sector is operating “without the required transparency, and without any particular time limits on [DAF] disbursements and without any particular disbursement quota per DAF.”

Investment industry participants say clients choose DAFs because they offer a simple and efficient way to establish a charitable account without the cost associated with setting up their own private foundation. DAFs give clients the flexibility to grow the monies within their charitable account, often with the help of a financial advisor, and to direct money to charities at a time and in amounts of their choice. Clients also can receive tax and estate planning, as well as charitable-giving advice in relation to the DAF.

The Senator suggests there’s a “mismatch” between the fact that donors receive a tax receipt when the DAF is established and funded, but donations flow out to charities over time: “I think setting a time limit for disbursement is reasonable.”

Charity sector insiders suggest that a sunset provision for distributions will be impractical and unnecessary. “Administratively, [it would be] a nightmare,” Sjögren says, adding that such a provision would be hard to monitor, administer and enforce, and would have the effect of turning people away from DAFs. Investment professionals familiar with the charity sector say that many foundations impose a minimum annual payout ratio on DAFs, and that clients are more interested in distributing money to charities than in holding money in the account.

Read the entire article by Investment Executive here.