Private Foundations, RMDs and DAFs

Families who conduct their philanthropy using both a private foundation and a Donor Advised Fund will want to plan carefully if a particular item in the Fiscal Year 2023 budget package becomes law.

Proposed changes to the private foundation rules seek to “clarify” that contributions to Donor Advised Funds do not meet the definition of “qualifying distributions” for purposes of the five percent annual distribution requirement for a private non-operating foundation.

These distributions still would be permissible, however, if the private foundation can show that the funds transferred to the DAF were distributed by the end of the following tax year.

Quite a few of our donor families have multiple giving vehicles.  This is particularly true for those with significant wealth.  In December, it’s not uncommon for us to receive six-figure checks representing the RMD (or a portion thereof) of half a dozen local family foundations. Generally, those distributions go into a DAF, giving the families a little more time to decide on end-recipient charities.

Suffice it to say, we will be paying close attention to any changes included in the FY2023 federal budget.

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