What restrictions or limitations are there on the types of organizations or projects eligible to receive funding through my Donor-Advised Fund?

While Donor-Advised Funds offer donors the flexibility to contribute at their own pace and support causes that resonate with their philanthropic goals, it's important to recognize that there are certain restrictions to DAF giving.

Given recognition by the IRS in 2006, Donor-Advised Funds are fairly new, innovative vehicles that can further your charitable impact and intentions. These charitable giving vehicles are created under a charitable organization’s (Legacy’s) guidance, with the intention of establishing a solidified role for philanthropy within your family’s core values. Through a Donor-Advised Fund, you may donate to the fund, receive a tax-deductible receipt for your donation, and then plan your families charitable giving to best suit your needs and timing.

This charitable giving, while given the flexibility of timing and intention, still does fall under restrictions specifically given to Donor-Advised Funds by the IRS. While planning this charitable giving, and deciding who the recipient of your donation will be, these are important factors to consider prior to submitting your recommendations.

Restriction 1: Types of Organizations

As Donor-Advised Funds are widely recognized as flexible, effective philanthropic vehicles, donations may only be recommended to qualified public 501(c)(3) organizations. This restriction stems from the fact that donors to Donor-Advised Funds have donor advisory privileges.

Donor advisory privileges- Donor-advised privileges refer to the privileges granted to donors who contribute to a donor-advised fund, including recommending grants to qualified charitable organizations, managing investments, and controlling the timing and anonymity of donations.

A qualified public 501(c)(3) organization is defined by the IRS as, “Organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes and that meet certain other requirements are tax exempt under Internal Revenue Code Section 501(c)(3).”

Some examples of qualified public 501(c)(3) charitable organizations include:

Religious organizations such as churches or synagogues
Educational organizations such as universities or research institutes
Charitable 501(c)(3) organizations such as American Cancer Society, Feeding America, or Salvation Army

With that said, Donor-Advised Funds cannot donate to private foundations, for-profit organizations, or individuals. These types of organizations are ineligible for support as they fail to meet the criteria set forth for qualified public 501(c)(3) organizations.

Restriction 2: Unsupported Projects or Areas of Impact

While exploring charitable giving through Donor-Advised Funds, there may be other restrictions that prevent certain projects or areas of impact from being supported. These restrictions are placed on Donor-Advised Funds, to ensure that the full availability of charitable funds are used appropriately.

Donor-Advised Funds cannot donate to projects or areas of impact that directly or indirectly support political campaigns or lobbying. Donor-Advised Funds also cannot donate to support or oppose candidates for public office. These restrictions aim to maintain the integrity of the charitable donation, ensuing donations are going to public good rather than a political agenda.

Additionally, Donor-Advised Funds cannot donate to projects or areas of impact that provide a personal benefit to the donor, their family members, or their advisors. Some examples of donations that would create personal benefit would be.

Donations to Universities for Tuition Payments- Donor-Advised Fund grants cannot be used to pay for tuition or educational expenses for the donor, their family members, or professional advisors
Donations to fund the Arts, in exchange for Tickets- Donor-Advised Funds cannot be used to “exchange” for tickets to events such as concerts, sporting events, galas, or conferences where the primary benefit is personal enjoyment, entertainment, or information
Donations to nonprofit organizations, in exchange for goods or services- Donor-Advised Funds cannot be used to donate to nonprofit organizations, in exchange for goods or services such as electronics, clothing, luxury items, regardless if the intended use is for the donor or their family and advisors

These brief examples encapsulate the personal benefit that may occur when issuing donations. Therefore, all donations that provide a personal benefit to the donor, their family members, or their advisors, are not permitted to be issued from a Donor-Advised Fund.

In conclusion, while Donor-Advised Funds offer flexibility for charitable giving, it's crucial to understand their restrictions when submitting recommendations for donations. By navigating these guidelines carefully, donors can ensure that their contributions align with legal requirements and achieve their philanthropic goals!

If you have any questions on your potential recommendation, please contact your account manager at Legacy, or email our team using support@legacyglobal.org.