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Public Unclear On DAF, Foundation Payouts

As more than $1.2 trillion sits in foundations and in donor-advised funds (DAFs), most adult Americans (69%) polled support higher annual payout requirements and even more (81%) believe taxpayers shouldn’t be subsidizing the wealthy individuals who they believe keep money “sidelined” in private foundations.

“By very large margins, Americans do not want the U.S. tax code subsidizing wealthy donors to create perpetual private foundations and warehouse wealth in DAFs. And, a broad, bipartisan majority wants donors who are receiving preferable tax treatment for their charitable contributions to move funds quickly to active charities on the ground,” according to authors of a report titled Americans’ Understanding of and Opinions about Charitable Foundations and Donor-Advised Funds.

The online survey of 1,005 adults conducted in June 2022 was initiated by the Charity Reform Initiative of the Washington, D.C.-based think tank Institute for Policy Studies. The polling was done by Ipsos.

However, authors wrote there is “a noteworthy level of ignorance about the nonprofit sector in general and about private foundations and DAFs more specifically.” Poll questions were designed to briefly educate respondents, who then, based on the poll explanations, responded to follow-up questions.

DAFs consist of cash, securities and other assets that are irrevocably invested for tax-free growth and recommended for charitable grants. Currently, there are no legal requirements for any percentage of DAFs to be released annually to charity while foundations must pay out 5% annually. 

Most respondents (64%) indicated they were aware of the struggles of working charities. Knowledge levels dropped significantly when those polled were asked whether they were aware, prior to the survey, of current facts and scenarios:

  • Donors can receive tax breaks when they give (38% aware)
  • Private foundations must pay out a minimum of 5% of their assets a year to be granted to charities and/or to cover overhead administration costs (21% aware)
  • Awareness of DAFs and how they work for donors and charities (19% aware)
  • DAFs aren’t obligated to disburse funds to active charities. Donors take tax deductions when they contribute to DAFs but there is no mandated payout. (18% aware)

With awareness heightened by poll questions testing their knowledge, a majority of respondents then strongly agreed or somewhat agreed with the statements:

  • Taxpayers shouldn’t subsidize billionaires/wealthy Americans who wish to create permanent legacy foundations to give donations to charities of their choosing (81% combined strongly or somewhat agree)
  • Congress should raise required payout from 5% to 10% for foundations and require that DAFs have a 10% payout even if this reduces the amount of money available in the future (69% strongly or somewhat agree.)

Those surveyed also want to see DAF money moved quickly: 50% of those surveyed want DAFs to make grants within two years and 22% want to see funds released to charities within five years. A quarter of the respondents indicated that donors can take as long as they wish making grants.

The poll also delved into the political leanings of respondents, finding that on the political spectrum 84% who identified as “very left” agreed somewhat or strongly with the statement that Congress should raise required foundation payouts from 5% of assets to 10% annually and DAFs pay out 10% annually.  Of conservative Republicans polled, 70% agreed somewhat or strongly and 55% identifying as “very right” felt the same.

Poll results support the position of the Initiative to Accelerate Charitable Giving (IACG), a coalition formed in 2020 of philanthropists, foundation leaders and nonprofits to promote greater and more accountable charitable giving. A spokesperson for the Charity Reform Initiative at the Policy Studies said that the IACG had no role in the survey’s construction.

IACG’s quest to create a set of government regulations on DAFs  was launched by Arnold Ventures LLC Founder John Arnold,  based on the work of Ray Madoff, Ph.D., a Boston College Law School professor and critic of modern philanthropic law. Other major foundations supporting IACG include the Ford Foundation, North Star Fund, Wallace Global Fund, W.K. Kellogg Foundation and multiple other foundations and nonprofits.

IACG’s efforts are opposed, including by the United Way, the Jewish Federations of North America and others.

Stephan Kline, associate vice president of public policy for the organization, said the perception that DAFs languish in accounts while needs abound is false. While there is no requirement that DAF assets be used in a certain period of time, Kline said, many organizations, including the Jewish Federations of North America, pay out double-digit percentage amounts annually from DAFs. 

If a minimum amount of DAF assets was required to be released annually, Kline said, some DAF sponsors might release only that bare minimum.

“There might be a lot who pay out only 5% and that wouldn’t necessarily be a good thing,” Kline said.

The National Philanthropic Trust in its 2021 donor-advised fund report examined data from 976 charitable organizations that sponsor donor-advised funds. The report found that grants from DAFs to qualified charities totaled about $34.67 billion in 2020, representing a 27% increase from 2019.

The survey can be viewed here:

https://ips-dc.org/wp-content/uploads/2022/07/Summary-of-American-Opinions-re-Foundations_Final.pdf

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