Is a Mandatory Payout for Donor Advised Funds on the Horizon?

August 16, 2012 Posted by The Law Firm for Non-Profits, P.C. in News

How many of our readers have money in donor advised funds (DAFs)? If you are one of those readers, you may soon be hearing a lot more about a mandatory 5% annual payout.

That’s because earlier this summer, the Congressional Research Service (CRS) issued a report concluding that, like private foundations, DAFs should have a mandatory distribution requirement.  The report noted that while the average distribution rate among DAFs is high (13.1% in 2008), many DAFs make little or no distributions at all.

You can imagine that DAFs around the country are not happy with this report. The Council on Foundations wrote a strong critique of the report, concluding that the CRS did not fully acknowledge the vast differences between DAFs and private foundations.

However, not all community foundations and other donor advised fund managers are so opposed to the CRS recommendation. In fact, many already require their DAFs to distribute more than 5% of the fund net assets each year.

Although Carol Bradford, Senior Counsel and Charitable Advisor at California Community Foundation (CCF), noted that the reasoning behind the report recommendations isn’t evident, she made clear that the threatened mandatory distribution wouldn’t affect CCF’s giving plan. Ms. Bradford explained that the figures CCF is seeing from its own program are in line with the 13.1% annual average. Ms. Bradford concluded that “[a]ctive management of a donor advised fund program, not mandatory distribution requirements, seems to be effective in insuring that grants are made on a regular basis.”

It is unlikely that any changes will be made for a long time, but we are sure to see more from both sides as this argument continues, and we’ll keep our readers informed.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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