Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform

47 Pages Posted: 28 Nov 2021

See all articles by Roger Colinvaux

Roger Colinvaux

Catholic University of America (CUA) - Columbus School of Law

Date Written: November 24, 2021

Abstract

Charitable giving incentives are failing to achieve their purposes. Currently $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations, a massive accumulation of wealth under the effective control of the wealthiest in society. Gifts to these charitable intermediaries inherently frustrate the purpose of the charitable giving incentives. Until the funds are released from the intermediary, no working charity is able to benefit from the donation. Congress recognized this delay in benefit problem with respect to private foundations in landmark legislation in 1969, but has never addressed the problem for DAFs, and the rules for foundations are now too easy to avoid. Recent bi-partisan legislation introduced in Congress would address these issues. The Accelerating Charitable Efforts (ACE) Act would impose a time limit on advisory privileges for DAF contributions and close loopholes in the private foundation payout rules, among other reforms. While the ACE Act has many supporters, there is organized opposition in favor of the status quo. The article explains the case for change and addresses the various arguments made against reform, including that current payout levels are sufficient, that reform would harm charitable giving and introduce costly new burdens on charities, that the timing of grants within a DAF does not matter and so should not be regulated, and that to limit advisory privileges is to target DAFs and to attack philanthropic freedom. Finding none of these arguments persuasive, the article also considers whether there should be an exception to reform for community foundation and other mission-driven DAF sponsors, and whether an alternative would be to impose a five percent payout rule on DAF accounts. The article concludes that reform of charitable intermediaries is essential for the legitimacy of the charitable giving incentives and to counter growing charitable wealth accumulations. The ACE Act however should be strengthened to apply to existing DAF accounts and to study the effectiveness of incentives to improve private foundation payout and the extent to which DAFs at mission-driven sponsors further their mission.

Keywords: donor advised funds, DAF, DAFs, private foundations, payout, advisory privileges, accumulation, reform, charitable deduction, charitable giving incentives, ACE Act

JEL Classification: H2, H20, H24, H26, H4, H5, H59, K34

Suggested Citation

Colinvaux, Roger, Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform (November 24, 2021). Boston College Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3971067

Roger Colinvaux (Contact Author)

Catholic University of America (CUA) - Columbus School of Law ( email )

3600 John McCormack Rd., NE
Washington, DC 20064
United States

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