CMF’s Government Relations Public Policy (GRPP) team is closely monitoring proposed federal legislation that would impose mandates on donor advised funds (DAFs) and private foundations. The Accelerating Charitable Efforts (ACE) Act (Senate Bill 1981) was introduced last week by Senator Angus King of Maine and Senator Chuck Grassley of Iowa.

The GRPP team has outlined key takeaways from the ACE Act. If passed as currently outlined, the bill would:

Replace existing DAFs with two new time-limited types of DAFs:

•    15-year DAFs: Those under which a donor would get immediate tax benefits (as under current law) but only if DAF funds are distributed (or advisory privileges are released) within 15 years of the donation. 

•    50-year DAFs: As an alternative, donors who want more than 15 years to distribute their DAF funds would be allowed to elect an “aligned benefit rule” under which the 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 charitable organizations no later than 50 years after their donation.

Provide special rules for community foundations: 

•    The ACE Act would allow donors to hold up to $1 million in DAF funds at any community foundation without being subject to the proposed payout rules. 

•    For amounts over $1 million, a donor could still receive up-front tax benefits if the DAF requires a 5% annual payout or if donations must be distributed within 15 years of contribution. 

Restrict private foundation spending practices by preventing them from meeting their 5% payout obligations through salaries or travel expenses to a donor’s family members or through distributions to DAFs. 

The ACE Act would eliminate the 1.39% tax on net investment income for private foundations if:

•    The private foundation makes annual Qualifying Distributions of at least 7%; or

•    The private foundation’s governance documents include a 25-year sunset (spend-down).

Additional 990-PF disclosure is required for contributions by private foundations to DAFs. 

The GRPP team is working with our national partners to strategize on our advocacy efforts. The Council on Foundations, for example, is engaging their members in an action alert. The ACE Act will be a key discussion item for CMF members serving on the Government Relations Public Policy Committee at their upcoming meeting on June 22.

In April, CMF’s Government Relations Public Policy Committee and Community Foundation Committee jointly hosted a lunch and learn conversation on payout and DAFs – first with Philanthropy Roundtable’s Vice President of Policy and Government Affairs Christie Herrera and Executive Senior Fellow Howard Husock, and then with Ray Madoff, a professor at Boston College Law School and co-author of the Initiative to Accelerate Charitable Giving policy proposal. While CMF hosted this dialogue to welcome diverse perspectives to the policy conversation, CMF’s government relations goals continue to hold that our members each have different engagement and investment strategies that include the value of endowed philanthropy. 

CMF members with questions on the proposed legislation are invited to connect with our GRPP team.

Newest Payout Rate Research Study Features DAF Data 

In the coming weeks CMF will be releasing the final installment in our payout rate research series – a comprehensive study of DAFs housed at Michigan community foundations. CMF once again commissioned the Dorothy A. Johnson Center for Philanthropy, this time to explore the question – what does the data tell us about DAF payout rates within our network of community foundations? The Johnson Center also researched DAF distribution rates particularly during 2020 to explore how DAFs responded to the pandemic and national reckoning for racial justice. We look forward to sharing those findings with our CMF community and all in our philanthropic ecosystem soon as we seek to advance deeper understanding and data-driven dialogue in our field.

Want more?

The Council on Foundations has released a statement and is encouraging its members to reach out to Congress in opposing the ACE Act. The Philanthropy Roundtable has also issued a statement. The Community Foundation Public Awareness Initiative statement can be found here.

Read statements from co-sponsors of the bill Senator Angus King and Senator Chuck Grassley. 

Learn more about the Initiative to Accelerate Charitable Giving which supports the legislation.

Connect with recent news coverage from The New York Times: “How Long Should It Take to Give Away Millions?” and “A new bill would force some philanthropies to spend money faster.”  

Connect with recent news coverage from The Chronicle of Philanthropy: “Sens. Grassley and King Push Measure to Accelerate DAF and Foundation Giving” and “Coalitions of Foundations and Donors Line Up to Oppose New Senate Measure to Speed Up Giving.”