Problems With Donor-Advised Funds

Many taxpayers chose to give donations to “donor-advised funds” instead of to traditional charities because of the significant tax benefits. Donor-advised funds, which are typically affiliated with large financial institutions, will hold, invest and distribute assets for charitable purposes. Donors receive an immediate tax deduction on their contribution, and there is no payout obligation. Donor-advised funds currently hold an estimated $25 billion in the United States and are the fastest-growing charitable vehicle in the nation.

However, one troubling aspect of these funds is the fact that charities do not receive immediate relief from the donations due to the non-existent payout obligation. As a result, some professionals are urging Congress to enact rules that create a seven year distribution obligation for donor-advised funds.

See Ray D. Madoff, Tax Write-Off Now, Charity Later, The New York Times, Nov. 21, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.