Donor Advised Funds – An Uncertain Future

Donor advised funds enable people to claim a charitable tax deduction on donated cash, stock, and other assets to these special accounts offered primarily by financial companies and community foundations while also allowing them to recommend how, when, and to which charities their money should be distributed. Donor advised funds have been growing faster than other forms of charitable giving but with the struggling economy and potential change in Congressional regulations, new concerns may weaken this philanthropy.

Given the uncertainty about the magnitude or duration of the current economic slump, the future of donor advised funds is also similarly unclear. Both large and small gift funds are noticing a drop in donations. This may not directly affect the distribution of donations by donor advised funds to charities considering that during the economic recession in 2002, giving by donor advised funds had actually increased by 5 percent. In one respect, people may be less willing to donate more assets but will still direct the money already donated out because they know the charities are struggling. However, although people may still desire charitable tax deductions available through future donations, many of their decisions to donate, distribute, and the like may be delayed until later in the year. While the state of donor advised fund assets can be more accurately described as stagnant rather than suffering at this point, this may not always be the case. The assets of donor advised funds dropped by 2 percent after the 2001 terrorist attacks and they may be on the brink of facing a similar fate, affecting the assets that will be available in the future.

Officials of donor advised funds are also waiting for the lawmakers’ reaction once the Treasury Department submits its report on donor advised funds to Congress. One concern is that if lawmakers impose new regulations that require donor-funds to spend 5 percent of the donor fund each year, similar to the private foundations annual payout requirement, people may be discouraged from starting funds in the first place given the current decrease in donations.

– Emily Chan