Just before the holiday season began in the fall of 2023, the Treasury Department published and sought comments on proposed regulations governing donor advised funds (DAFs). Although long anticipated, the proposed regulations caught many of us off guard. Was this the opening salvo, a continuing assault on DAFs, or the final barrage? Is there more here than meets the eye or less? And what’s coming next? 

For decades, donor advised funds existed in legal limbo. As funds of a public charity (the community foundation), they have operated under a web of legal concepts and regulations governing community trusts and nonprofit fund accounting. Finally, the Pension Protection Act of 2006 provided legislative direction and then, 17 years later in the fall of 2023, these proposed regulations were issued.

For the most part, the proposed regulations are focused on providing definitions, clarifying the roles and responsibilities of the parties, and clarifying the distinction between donor advised funds and private foundations. The regulatory approach, the big stick if you will, is to define certain donor advised fund distributions as taxable and apply an excise tax on them.

Contributions of appreciated assets offer tax savvy opportunities for gift planning. But what if the donor is not eager to part with the entire asset? That’s no problem if the asset is securities; our donor simply transfers as many shares as she chooses and keeps the rest for herself. However, other assets aren’t so easily divided – things like real estate or bank, investment, or retirement accounts. A contribution of a partial interest can allow donors to give a portion of the property and retain the rest for themselves, their family, or others.

Navigating a contribution of a partial interest can be a bit like the challenges Odysseus faced on his journey home. It wasn’t all smooth sailing. He had to navigate rocky shoals, whirlpools, and angry gods, but eventually, he made it home safely.

It’s that most wonderful time of year again – lots of good cheer, too much fruitcake, not enough eggnog – and gifts – so many gifts! We see lots of gifts this time of year, and many different types of gifts – those between persons, certainly, but also gifts by employers, exchanges within groups, and of course, donations to charity. And in certain cases, the gifts fall into more than just one of those categories. In our world of planned giving, we frequently work with gifts that benefit both individual persons and charitable organizations. All of that is good, of course, but some gifts involve potential costs for the person doing the giving. It may seem counter intuitive, but in some cases, there are potential costs of giving.

To make sense of this apparent contradiction, let’s take a step back. If we leave out the charitable piece for a moment, we can focus on just the gifts that are made between persons. Most people would agree that one can never have too much money, but there are consequences of having great wealth under our tax structure. Since the early twentieth century, the United States has had a tax on the transfer of significant amounts of wealth between individuals. When we talk about “transfer taxes,” we are typically speaking about the taxes on transfers of wealth between living persons – “gift tax” – or taxes on the transfers of wealth from a deceased person to living persons – “estate tax.”

No doubt, you have heard about looming changes threatening the long-established rules governing donor advised funds (DAFs). Some commentators are sounding the alarm. The Philanthropy Roundtable says the changes “would stifle charitable giving, harming those in need.” Others welcome the effort to free up charitable dollars they believe have been squirrelled away for far too long. We will leave the Wagnerian sturm und drang to others, but it is important to understand these proposals and what may be coming our way.

On June 9, 2021, Senator Angus King (I-ME) introduced Senate Bill 1981, the Accelerating Charitable Efforts Act (the “ACE Act”) with Senator Charles Grassley (R-IA) as a co-sponsor. The bill was referred to the Committee on Finance. As of this writing, there are no additional co-sponsors and no companion legislation in the House. Although legislative prognosticators give the ACE Act only a 1% chance of becoming law in its current form, parts of it could find their way into other legislation. In addition, the ACE Act is heating up long-simmering debates about donor advised funds and private foundations.

Although the ACE Act includes some significant changes to the private foundation rules, donor advised funds are the primary focus – some will say “target” – of the bill. Following is a summary of major provisions of the ACE Act that apply to donor advised funds.

As of the writing of this article, the inauguration of Joseph R. Biden, Jr. as the 46th President of the United States is just days away. Although past changes in the balance of political power have had little impact on overall charitable giving, we know that when donors experience uncertainty they tend to postpone and delay their giving decisions. This is a natural reaction: charitable giving is optional and, faced with uncertainty, the rational choice is to slow down or defer giving until the future becomes clearer.

Changes in tax law can create new and different gift opportunities. Gift planners will need to watch carefully and be prepared to react strategically to changing circumstances. What concerns might surface among donors? Could potential changes affect donors’ gift plans? How might we anticipate and address them? In this article we begin with a review of some concerns that are likely to be on donors’ minds with respect to charitable giving followed by a discussion of some of the essential processes by which Washington works.

PG Calc speculates and offers commentary about impending changes to Federal tax policy and the possible impacts on charitable giving. However, written on the eve of America’s transition to the Biden/Harris administration and the beginning of the 117^th Congress, there’s a good chance that parts of it will pass into the category of "things we know for sure that just ain't so."