National standards for community foundations on inactive accounts, a minimum 5% annual payout of assets held in donor-advised funds (DAF), and expanding charitable giving were among the recommendations issued by a group of community foundation leaders working to address issues around the fastest growing area of philanthropy.
The Council on Foundations (CoF) convened the Strengthening Community Philanthropy Ad Hoc Working Group to develop recommendations that promote consistent, effective and transparent use of DAFs and strengthen trust in philanthropy. “The recommendations were driven by community foundations working on the ground and informed by available data and the experiences and expertise” of the working group, according to the Washington, D.C.-based CoF.
The 11 community foundation leaders in the working group examined the benefits and challenges associated with the use of DAFs since this past July, reaching consensus on five recommendations that were released last week:
- All community foundations should develop and enforce an inactive funds policy with key elements and encourage all sponsoring organizations to develop similar policies that they share with their donors and the public as a best practice for the sector. The recommendation also encourages the U.S. Department of Treasury to include the percent of inactive funds on IRS Form 990 with an opportunity for organizations to provide important context for why such funds are categorized as inactive.
- Community foundations should establish a minimum annual distribution requirement of 5% of the total assets held in their DAFs. Community foundations that distribute more than 5% may carry forward the excess for up to five years to address any future shortfall.
- Funds contributed to a DAF by a private foundation should be distributed within five years for the distribution to be considered part of the private foundation’s qualifying distribution.
- The charitable community should convene to develop recommendations for managing the donations of complex and illiquid assets that apply to all 501(c)(3) organizations – not just DAFs.
- Tax laws should encourage individual giving and benefit all donors by incorporating changes like the Universal Charitable Deduction (UCD) or charitable tax credit for taxpayers who do not itemize, and include distributions from an IRA to a DAF as a qualifying distribution.