Leveraging Donor Advised Funds to support science & engineering innovation

While many financing vehicles are likely to be considered by sophisticated families and individuals, donor-advised funds (DAFs) provide a critical vehicle for philanthropists.

DAFs are a philanthropic giving vehicle administered by a nonprofit sponsor, and, since emerging in the 1930s, have served as the operational backbone for many US-based community foundations, national charities, and single-issue charities. Title XII of the Pension Protection Act of 2006 regulates DAF expenditure processes with a series of excise taxes for non-charitable distributions. This regulation has facilitated an astounding 12% compounded annual growth rate in total DAF assets under management since 2007.

However, the legislation falls short of providing clear guidance on DAF investments, especially with regards to funding the commercialization of early-stage (but for-profit) S&E solutions. Thus, DAF donors and managers may be unaware of the opportunities to leverage the vehicle in support of potentially transformative science and engineering innovation.

Common questions preventing widespread use include:

• Can a DAF account make private or mission related investments akin to private foundations?

• What mechanisms exist today to support for-profit enterprises from a DAF?

• What tax liabilities might arise when making investments or distributions from a DAF?

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