Tuesday, November 22, 2011

Rein In Donor-Advised Funds?

Donor-advised funds are private charitable foundations for the rest of us. Amounts transferred to the fund are deductible, subject to the usual rules. Investment earnings accumulate tax free. And unlike charitable foundations, donor-advised funds need not pay out at least 5% a year to charitable recipients.

Cool idea! And popular. In her NY Times op-ed, Ray Madoff describes donor-advised funds as the fastest growing charitable vehicle in the United States, now holding about $25 billion.

That's good news for Fidelity and all the other fund managers, who collect an extra 1% or so yearly in addition to their normal investment fees. Good public policy? Not without tightening the rules, Madoff believes:
Congress should enact rules that require donor-advised funds to distribute all of their assets to real public charities within seven years of their contribution. In addition, Congress should make clear that private foundations cannot meet their payout obligations by making gifts to donor-advised funds.
Would you agree?

From Schwab's web site, a clear, simple promo for its donor-advised fund.

1 comment:

Jim Gust said...

The seven year payout could be a big negative for some donors, who want to be able to direct charitable donations throughout their retirement. Might lead to smaller, serial contributions to the donor advised fund.

What's wrong with my idea of making the investment income of such funds taxable? Leave the deduction for the contribution, just make all investment income, earned by anyone and any entity, fully subject to income taxes?

We put a list of the top ten charities from the Chronicle of Philanthropy on page 3 of ITN, and the big donor-advised funds were by far the growth winners.