The Yale Office of Development will soon implement donor-advised funds through which donors can make gifts to Yale and other institutions over an extended period of time but reap an immediate tax deduction. Development officials said this new method of donating — which should be implemented this spring — will likely increase overall gifts and strengthen the relationships Yale has with its donors.
Through a donor-advised fund, the donor makes a gift to a single non-profit or for-profit institution which will draw principle from that gift annually and distribute it to other institutions over a number of years. Donors get a tax break on the full amount of the original gift because they are technically relinquishing total control of the money — a requirement for receiving an income tax deduction. But donors continue to have a say in how the primary recipient distributes the money.
Gifts to charitable and non-profit organizations such as Yale are tax deductible, meaning that individuals are not taxed on the amount of the gift donated.
At Yale, the donor-advised fund would work like this: if a donor wishes to give Yale $1 million today through this fund, he would receive a tax credit for that amount immediately. At that point, Yale would be in control of the money, which would be managed along with the endowment. Each year, Yale would draw a certain percentage of the principle to benefit itself and other institutions. A Yale donor-advised fund would require at least 50 percent of money drawn to go to the University.
Even though donors give up formal control of their money when they turn it over to Yale, members of the development office will consult with the donors about what other institutions — such as art museums or foundations — should receive funds. Yale officials said it is unlikely the University and the donor will disagree about how the money will be used.
“I suppose its possible there could be a conflict,” said Charles Gordy, director of planned giving. “But I’m not aware of any.”
Vice President for Development Charles Pagnam said Yale will have “veto power” to deny the donor his wishes. He said it is important that the University deem the secondary charities “proper.”
Yale has much to gain from this new method of giving gifts. Gordy said donor-advised funds could increase fund raising totals and spawn relationships between Yale and charitable organizations. But he said Yale’s primary reason for instituting this option is to “give donors all the benefits they want.”
Gordy said donors have made requests for this type of fund. There are a few donor-advised funds in place at Yale already, but it has never been an official gift-giving method.
Yale’s peers have already jumped on board with this trend, which Gordy said has gained much prominence in the past five years. He said the University of Pennsylvania and Harvard, Cornell, and Stanford universities have been using this method for a number of years.
Pagnam said once Yale is ready to formally market this option, the development office will study which age groups might be most interested in this plan. He said Yale might send out mailings to classes and advertise the fund in the Yale Alumni Magazine.