Donor-Advised Funds and the Uncertainties of the Fiscal Cliff

We are four days away from tipping over the “fiscal cliff” and Washington does not yet appear any closer to a solution. A number of proposals will reduce or eliminate the charitable tax deduction. In my last blog post, I wrote about the dramatic impact that augmenting the deduction could have on giving in the U.S.—reducing giving by $10 billion or more, according to some estimates.

The uncertainty around the charitable tax deduction has fueled giving, particularly to donor-advised funds. We have seen an enormous increase in contributions to NPT donor-advised funds over this same time last year. While overall growth in donor-advised funds has been multi-year trend, we attribute a large part of this recent, year-end boom to the economic uncertainties the fiscal cliff represents. But it is also due, in part, to the appealing tax benefits and giving flexibility that donor-advised funds can offer.

Philanthropists can contribute to a donor-advised fund before December 31st and receive the current charitable tax benefits, while making grants to charities in future years when the deduction may be less beneficial or nonexistent.