The Other Madoff

Donor Advised Funds (DAF)

by Randy Fox

Donor Advised Funds (DAFs), America’s favorite giving tool are regularly under attack. One of the biggest critics, is professor Ray Madoff of Boston College. Professor Madoff continues to criticize that DAFs are somehow abusive since donors receive an income tax charitable deduction for giving their assets away to a DAF but retaining the right to distribute the funds to various end user charities. She claims that not enough of the charitable dollars are actually being distributed and in a new proposal published in the Chronicle of Philanthropy suggests and alternative tax plan. Her most recent proposal suggests that a gift to a DAF would still be eligible for capital gains tax avoidance on low basis assets but there would be no income tax deduction until assets were distributed to charities.

Why this issue is an issue is a puzzle. A DAF is a public charity. According to the National Philanthropic Trust 2018 DAF report, DAF payout rates are in the range of 20% per year, far exceeding the 5% requirement of Private Foundations. The fact that donors want to take time to make decisions on where to give and how much to give, and when to give should note create the need to change the rules. 

We are in a time when many donors want to see the impact of their gifts and to measure the results. They don’t want to make a one-time gift and watch their funds be potentially frittered away. We are also at a time when families are wanting to teach the next generation how to give and how to give wisely and DAFs offer a level of convenience that is unmatched. 

Would professor Madoff have gifts to other public charities (DAFs are public charities) be treated the same? Give a gift to your college but no tax deduction until your gift is spent (or budgeted, or allocated, or what…?). 

Stop the craziness. DAFs flat work. They are causing people to make gifts. They can’t ever get their money back. They can only give it away. They will. They are.

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