Reforming Donor Advised Funds

A donor advised fund (DAF) is a tax-advantaged, flexible, and convenient tool for charitable giving. They are easy to set up: Donors simply establish a DAF account with a sponsoring organization into which they deposit funds that will be disbursed over time to charities selected by the donors. Donors can take an immediate charitable tax deduction each time they contribute to their DAF.

DAFs can be created during a donor’s lifetime or after death pursuant to a donor’s Will or Trust and are reportedly the fasting growing charitable giving vehicle in the country. There are three million DAF accounts holding $230 billion, from which more than $52 billion was distributed to charities in 2022.

The Internal Revenue Service has recently proposed new regulations for DAFs that could significantly impact this popular and effective giving tool, including:

1. Time Limits on Distributions: One of the proposed changes involves setting a deadline for DAFs to distribute funds to charities after they've been contributed.
2. Enhanced Reporting Requirements: The IRS wants to beef up reporting obligations for DAF sponsors, requiring them to disclose more detailed information about their operations.
3. Clarification on "Qualified Charitable Distributions": There's been some confusion in the past about what types of organizations qualify to receive grants from DAFs. The proposed regulations aim to provide clearer guidance on this front.

While the IRS claims that these regulations could rein in abuse and misuse of DAFs, the arguments against the changes are many, ranging from their overly broad nature to their retroactive application to whether the IRS has overstepped its authority in proposing them. For now, it’s important to remember that these regulations are still just proposals, and the IRS is currently reviewing the thousands of comments it has received.

We will continue to monitor how these regulations develop. The Wright Beamer attorneys can help navigate any changes that come your way and ensure that your charitable efforts stay on the right side of the law.