Frequently Asked Questions About Donor-Advised Funds
With the enactment of the Pension Protection Act of 2006, the provisions of the Internal Revenue Code that govern donor-advised funds (DAFs) were significantly revised and expanded. In an effort to clarify these provisions, New England Conservatory offers this document that summarizes the updated NEC policy regarding acceptance of grants recommended through DAFs. This document is intended as a guideline regarding NEC’s policies; donor-advisors should consult their DAF managers, tax advisors, and legal counsel for definitive tax treatment.
Additional questions about making a gift to NEC through a DAF should be directed to individual gift officers or to Julia Olson, Associate Director of Donor Relations, at 617.585.1185 or at Julia.Olson@necmusic.edu.
What is a donor-advised fund (DAF)?
A donor-advised fund is a giving vehicle offered by many investment and mutual fund companies, as well as some community foundations. DAFs allow donors to make a charitable contribution to the Fund and receive a charitable tax deduction at the time that personal assets (e.g., cash or stock) are transferred to the DAF. For many, DAFs serve as a low-cost alternative to creating a private foundation for their philanthropic endeavors.
The funds are controlled by the DAF, not by the individual. This means that an individual who gives through a DAF cannot make a legally binding commitment on behalf of the DAF. However, an individual donor who gives to a DAF may recommend that a DAF makes a specific contribution to a specific qualified charity, and DAFs will almost always comply with the donor’s recommendation.
The Pension Protection Act of 2006, the IRS Code provision that governs DAFs, states that no more than an “incidental benefit” can be received in exchange for any grants made by DAFs. While the statute lends itself to many interpretations, for those recommending grants this generally means that donor-advisors cannot receive anything of substantial or potentially monetary value.
Since the original contribution to the DAF provided the maximum tax deduction, the donor-advisor cannot receive any benefits that would change the value of the tax deduction. As a rule of thumb, if you could not write a check from your personal checking account and receive a full deduction for the gift, then a DAF grant cannot be used.
May I use a DAF grant to purchase A Feast of Music or other fundraising event tickets?
No. Because ticketed fundraising events such as A Feast of Music provide a benefit to the attendee (in the case of A Feast of Music, a dinner), DAFs may not be used to purchase tickets for such fundraising events.
May I use a DAF to pay for just the tax-deductible portion of the ticket?
For A Feast of Music and other NEC ticketed fundraising events, there is often a non-tax-deductible portion (the cost of the event) and a tax-deductible portion (the charitable gift) to the ticket prices.
Often referred to as bifurcated gifts, the IRS does not provide definitive guidance on whether DAFs may or may not be used towards the tax-deductible portion for these type of ticket purchases.
NEC does not permit DAF grants to be used for the tax-deductible portion of such bifurcated gifts. However, DAF grants may be used for additional or stand-alone fully tax-deductible donations at such events.
This policy was instituted and fully adopted by NEC and its Board of Trustees, and will be fully enforced by NEC’s Institutional Advancement office. As always, NEC advises you to consult with your legal and tax professionals for guidance in making donations and DAF grant recommendations. Please contact the NEC Institutional Advancement team if you have any questions regarding this policy.
May I use a DAF to satisfy a pledge?
Donor-advised funds may not be used to satisfy legally-binding pledges or agreements made with New England Conservatory. Additionally, a new pledge cannot be entered into with the intent of making payments through a DAF. The satisfaction of any pledge or agreement would serve as a relief from a binding financial obligation, thereby granting any donor-advisor a “more than incidental benefit.”
What can I do instead?
As an alternative to a pledge, for those wishing to make longer term, multi installment gifts through a DAF, NEC does offer the ability to sign a letter of intent. This non-binding alternative allows donors to alert NEC of their giving intentions and allows the Conservatory to properly recognize their generosity.
Contact Julia Olson, Associate Director of Donor Relations, so that an appropriate Letter of Intent can be created to suit your giving intentions.
I have some other questions about Donor-Advised Funds.
We’re here to help. Contact Julia Olson, Associate Director of Donor Relations, at 617.585.1185 or at Julia.Olson@necmusic.edu with any other questions you might have about donor-advised funds.