Over the past several decades, Donor-Advised Funds (DAFs) have seen enormous popularity – with over $56 billion granted out to charities from these giving vehicles in 2023 alone. The New York Community Trust is proud of having created the first DAF, in the 1930s, which means we have been administering DAFs for the vast majority of our 100-year history.
We administer many variants of DAFs – DAFs established as memorial funds, DAFs that receive the terminating grant of a private foundation that is winding down, testamentary DAFs established as a means of bequeathing the “gift of giving” to loved ones, DAFs that receive tailored services from our philanthropic advising team, and DAFs styled as endowments that will eventually become part of the pool of funds we administer in perpetuity. And of course, we also offer “garden variety” DAFs, which are a low-cost and convenient giving vehicle for carrying out philanthropy. The Trust also offers other types of funds to our donors, namely, “field of interest” funds, “designated” funds, and “collaborative” funds. Learn more about the types of funds we administer.
Until the enactment of the Pension Protection Act (PPA) in 2006, the definition of a DAF was informal. The PPA provided the first statutory definition of the concept, which was the basis, in turn, of imposing rules around grantmaking from DAFs, and excise taxes for certain DAF transactions. After the PPA, it remained the case that DAFs within a public charity such as The Trust were still more advantageous for a donor than a private foundation, but DAFs also fell under new restrictions that disfavored DAFs relative to our other types of funds, such as the “field of interest” or the “collaborative” fund.
As a consequence, we administer funds falling within different tax regimes that affect the kinds of contributions some of our funds may accept (e.g., a DAF may not accept qualified charitable distributions, or QCDs, from IRAs whereas our other funds may), the grants going out (e.g., a DAF may not make grants to individuals and must exercise expenditure responsibility for foreign grants, whereas our other funds don’t face these limitations), and the content of the charitable acknowledgements we provide to our donors.
Since 2006, The Trust and other DAF sponsors have been following PPA and waiting for regulations, as contemplated by the statute. Finally, in November 2023, seventeen years after the PPA’s enactment, the Treasury Department issued proposed regulations, mostly relating to the definition of a DAF and a “donor” and “donor-advisor” to a DAF and the types of DAF distributions that may be subject to excise taxes.
The proposed regulations have been something of a bombshell in the field because of the expansiveness of the definitions and because the proposed regulations would require fundamental changes to the way many DAF sponsors have been administering DAFs.
Community foundations are also concerned about the impact the proposed regulations would have on our other types of funds, potentially causing some of our funds that seemed to fall outside the DAF regime to be treated as DAFs nonetheless.
The Trust joined many others to submit written comments to Treasury in February, and Treasury scheduled a public hearing on the proposed regulations for May 6, 2024. Read our comments here. If you are interested in this topic, we also encourage you to read an op-ed by our President Amy Freitag.
We are aware that the conversation about the proposed DAF regulations can get pretty technical, but we are not shy about the bottom line: We think the proposed DAF regulations are unduly expansive and burdensome, and they need to be revised in significant ways for DAFs to thrive and for other types of funds administered by community foundations like The Trust to remain vital and effective tools for philanthropy.
Please reach out if you are interested in discussing DAFs or any other philanthropic vehicle that you may be considering for your clients. We are here to help.
Carrie Trowbridge
General Counsel, The New York Community Trust
carrietrowbridge(at)nyct-cfi.org | (212) 686-2563
www.nycommunitytrust.org/advisors
This material was developed for the use of professionals by The New York Community Trust. It is published with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, you should speak to your own tax or other legal or accounting advisor.