Last month, Senators Chuck Grassley (R-IA) and Angus King (I-ME) introduced bipartisan legislation that aims to reform private foundations, and ensure that charitable dollars held in donor advised funds (DAFs) are distributed to working charities in a reasonable period of time.
“Donor-advised funds currently have more than $140 billion set aside for future charitable gifts – but under current tax laws, the funds have no requirement to ever distribute these resources to working charities. Accordingly, DAFs can accept and hold charitable donations that have generated a federal income tax deduction, but never devote the resources to charitable work. The ACE Act will address this problem and speed the provision of money to working charities by replacing existing DAF rules with two new types of DAFs:
- 15-year DAFs: The bill will create a new form of DAF under which a donor would get upfront tax benefits (as under current law), but only if DAF funds are distributed (or advisory privileges are released) within 15 years of the donation. To avoid overvaluations, the income tax deduction for complex assets – such as closely-held or restricted stock – would be the amount of cash made available in DAF accounts as a result of the sale of the asset (instead of the appraised value).
- 50-Year DAFs: As an alternative, donors who want more than 15 years to distribute their DAF funds will be allowed to elect an “aligned benefit rule.” Under this rule, a DAF donor would continue to receive capital gains and estate tax benefits upon donation, but would not receive the income tax deduction until the donated funds are distributed to the charitable recipient. All funds would be required to be distributed outright to charities no later than 50 years after their donation.
America’s community foundations will receive certain exemptions under this bill to support their place-based, mission-driven work; specifically, the ACE Act will allow any donor to hold up to $1 million in DAF funds at any community foundation without being subject to payout rules. For amounts over $1 million, a donor still can receive up-front tax benefits if the DAF requires a five percent annual payout or if donations must be distributed within 15 years of contribution. The legislation will also reform existing rules governing private foundations, ensuring that these entities cannot meet payout obligations through salaries or travel expenses to a donor’s family members, or through distributions to DAFs.”
It’s expected that this bill will be fiercely debated. If you are a constituent of Senators Grassley or King, you can voice your support for or opposition to the ACE Act by contacting them: