Donors recommend hundreds of grants totaling over $3 million every day that American Endowment Foundation(AEF) quickly approves and sends out. Unfortunately, AEF must contact several donors each week to explain why their grants cannot be approved. The donors usually understand the reasons once AEF explains that it needs to remain compliant with all current laws and regulations, and that AEF has a responsibility to protect the donors, charities that would have received the grants, and AEF itself from IRS fines, penalties and other repercussions should it send these grants.
Because AEF does not want to reject any recommendations, we strive to educate both donors and their advisors so they are aware of any restrictions before they submit a grant recommendation that cannot be fulfilled. Some of the donors tell our Grants department that their financial, tax, or legal advisor were the ones who told them that they could use their DAF to pay for their seats at a gala, opera tickets, or golf outing, so we appreciate your time and interest in reading this column and sharing it with colleagues.
Advisors and donors are welcome to read through AEF’s Granting Guidelines, and the more detailed Granting Policy Statement.
Here are some of the more frequent questions or issues that arise:
Can donors receive any benefits from a grant from their DAF account?
A grant must be used exclusively for charitable purposes. Donors and their family members cannot receive anything beyond an incidental benefit (coffee mugs, intangible religious benefits, newsletters) from the charitable organization to which they made a grant. They cannot accept meals, tickets, or tuition.
Can donors pay for part or all of the cost of events, galas, golf outings, or tickets?
Grants from a DAF cannot be used to pay any portion of a donation split into tax deductible and non-tax deductible portions. This is called bifurcation. AEF will not approve the recommendation if the receipt of any benefit (such as attendance at a charitable event) is contingent upon the grant from the DAF as part of a larger donation. The IRS considers the relief of the donor’s obligation to pay full price of a ticket/admission to a charity sponsored event a direct benefit that is more than incidental.
A donor may make a grant to support or sponsor a charitable event or gala and receive acknowledgement for that support. However, if in exchange for the grant, the charity offers a ticket to the event (or any benefit), and the value of that ticket is more than incidental, the donor must decline it.
Specifically, donors cannot pay for seats or a table at a gala from their DAF account unless they donate the table to the charity and the charity selects attendees who are unrelated or unknown to the donor. Donors cannot pay for the cost of the ticket to a gala out of their DAF account and then send a check to the charity to pay for the price of a meal. Donors cannot pay for auction items from their DAF, though if at the event a donor wants to make an additional contribution and receive nothing in return for their donation, that is permissible.
Whenever a donor indicates in the grant recommendation form that the grant is for a named event or exclusive membership category, AEF reaches out to the donor first to explain the proper use of the donor advised fund and their grant and to verify that the donor is not receiving any impermissible benefits. If additional clarification is needed, AEF will reach out to the charity.
Can grants from a donor advised fund pay for memberships?
Grants may not be used to satisfy the cost of a membership if the membership offers more than incidental benefits to the donor. Membership that includes attendance to a museum or religious services, newsletters, or tote bags is acceptable. Perks that include free parking, meals, or tickets are not allowed.
Unfortunately, a donor cannot pay $4000 for a membership category from their DAF that may include tickets or parking. Furthermore, a donor cannot pay $4000 for that same category out of the DAF and then pay $200 on their own which may be the estimated cost of the parking or tickets that are included in that category.
Can grants from a DAF pay to support missionary work?
Grants from a DAF cannot be used to benefit an individual, either directly or indirectly, except support grants for missionaries and scholarships. If a donor recommends a grant to an eligible charity to support the missionary work of an individual, AEF will contact the donor to ascertain if the named individual is a relative. If the named individual is a relative, the grant recommendation will not be approved. If the missionary is of no relation to the donor, the grant will be approved with a special statement added to the letter. Relatives will be interpreted as the donor and the donor’s spouse, ancestors, children, grandchildren, great grandchildren, brothers, sisters and spouses of any of these persons.
Can a DAF pay for a scholarship?
Donors may recommend a grant for a scholarship administered by an eligible charity or school. The donor may indicate the grant is for the named scholarship, but not designate the specific individual. The grant check will be made payable to the organization sponsoring the scholarship for the benefit of the scholarship fund. The donor and other members of the donor’s family may participate on the independent scholarship selection committee but may not represent the majority of the committee.
Can a donor advised fund pay for a fundraising campaign?
Donors may recommend a grant for a fundraising campaign for a charitable cause (i.e. walking or biking fundraisers for a charitable organization) where an individual is responsible for the fundraising but does not receive more than an incidental benefit from the fundraising. Grants from a donor advised fund to support a “GoFundMe” or other fundraising type platforms are ineligible and will be denied if the intended recipient is a specific person.
Can a DAF be used to fulfill a pledge?
After IRS guidelines were issued near the end of 2017, donors are now able to recommend a grant to fulfill a pledge to a charitable organization, provided that AEF makes no reference to the existence of the pledge when making the grant, the donor does not receive any benefit that is more than incidental on account of the grant, and the donor does not attempt to claim a charitable deduction with respect to the grant.
Can grant checks be sent to a university for the right to purchase football tickets?
No
Can grant checks be sent to a donor to deliver to the charitable organization?
No, AEF may only send them directly to the charity.
Can grants be sent to charities based overseas?
Yes, though there may be additional fees and extended processing times associated with making the grant. The first option, however, to avoid additional fees, is to determine if there is instead a US based “Friends of” organization for the international charity. AEF works closely with the leading international granting intermediary to vet and process these grant recommendations, and AEF simply passes along the additional fees to the DAF account.
Though AEF is very flexible and will approve nearly all grant recommendations, occasionally the Grants department must turn down some. Many other DAF sponsors have more significant granting limitations to different geographic areas or to causes that may conflict with the mission of the DAF sponsor.
AEF donors were very generous in recommending $550,000,000 in grants last year, which was a 30% increase over the previous year. This year, grants have increased another 50% so far and the pace is expected to continue through year-end. We strongly encourage advisors and donors to submit grants early this year to avoid any possible delays during the November and December rush and because charities always appreciate the support as early as possible.
By reviewing our Granting Guidelines, you’ll know the details you need to ensure that your grant recommendation can be fulfilled. We are always happy to help you. If you have further questions, call 1-888-440-4233, or contact us.