Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, January 2, 2021

Philanthropists Push for Charitable Giving Reforms

CharityIn order to increase the amount of money available for nonprofits, a group of high-profile philanthropists have been working together with estate and gift tax experts to push for reforms in charitable giving laws. 

The objective is to "unlock some of the US $1 trillion sitting in private foundations and DAFs that is not obligated to be distributed to nonprofits under current law." Basically, they want the money to be accessible to working charities so they can work. 

According to Ray Madoff, a professor of estate and gift tax estate planning at Boston College, "The government shouldn't be subsidizing putting money aside where it might or might not be spent for the benefit of society." 

Madoff also stated that private foundations are obligated only to pay out 5% of their assets to public charities annually, with the foundation being able to put the rest to place of its choosing. 

With Donor Advised Funds (DAFs), individuals are allowed to make donations into an investment fund managed by a public nonprofit. However, the funds are not required to be distributed to a public charity because the DAF is managed by one.

According to Madoff, these "tax-advantage vehicles" are not producing many benefits for society. One reason for this is that the law cannot keep up with the ever-growing DAF investments. Another issue is that private foundations can meet their annual 5% payout by distributing funds to a DAF instead of operating a charity. 

The philanthropist groups are proposing that Congress—with the help of Joe Biden—engage in "emergency charitable stimulus" legislation that raises the required annual payout rate to 10%. 

See Abby Schultz, Philanthropists Push for Charitable Giving Reforms, Barrons, December 23, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


Current Affairs, Current Events, Estate Planning - Generally, Gift Tax, New Legislation | Permalink


A private foundation making a distribution to a DAF is a loophole that should be closed, and perhaps some spending requirements for DAFs would be in order. However, raising the required spending from 5% to 10% for private foundations, undermines the long-term financial strength of the private foundation. We are the beneficiaries today of legacy foundations created in centuries past (Rockefeller, etc.), and having a reasonable spending distribution will ensure that they are there as a resource for future generations.

Posted by: Sheila Hard | Jan 3, 2021 12:04:01 PM

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