How Could the Accelerating Charitable Efforts Act (ACE) Affect Donors in New Jersey?

Although the citizens of New Jersey are able to receive the current federal tax benefits of giving, the state’s revenue system currently offers no tax deductions for charitable donations. Thankfully, the U.S. government offers some tax relief, however, if the Accelerating Charitable Efforts Act (ACE) is enacted, potential donors in New Jersey may be restricted from giving as they usually do. One of the charitable methods targeted in the ACE act is Donor-Advised Funds or DAFs. If New Jersey residents are considering the use of a DAF, or already are contributing to a DAF, they need to learn about the possible changes.

What Are Donor Advised Funds (DAFs)?

If you choose to make a contribution to a DAF, your account will be managed by a sponsoring organization and you will be able to direct your funds to a charity of your choice over a period of years. Some current benefits to DAFs are:

• You can receive a tax deduction right away even if the money isn’t distributed to the charity yet.
• No capital gains taxes on donations to a DAF and you can deduct the current value of the assets you give
• You won’t have to pay estate taxes on funds and assets you put in a DAF, so the total taxable amount of your estate will be lower.

One of Morgan Stanley’s top financial advisors and managing director, Harvey Bell, of Short Hills, sums up additional benefits of DAFs:

“…a DAF offers more time to create a thoughtful, strategic giving strategy, as assets can grow tax-free between the time of donation and the finalization of the plan. A DAF can streamline the donation of complex assets such as art, automobiles, or real estate, assisting with paperwork and simplifying disbursements. To make record-keeping simple, a DAF provides regular statements on grants, gifts, fees, and investment performance.”

What Are the Proposed Changes in the Accelerating Charitable Efforts (ACE) Act?

Donors would need to distribute their money or assets to DAFs in any amounts, but they would need to complete the donations within 15 or 50-year time frames. The proposed changes for a 15-year DAF would be:

• Income tax deductions can only equal the amount of the charitable donations that year, and the actual sale price of the asset.
• Tax relief allowed currently would only be granted if the funds are donated in the 15-year time period.
• Donations of $1 million or more would still be eligible for tax benefits, but the fund would require a yearly 5% donation payout or the 15-year time limit for distribution.

For the 50-year option, the law would require:

• Donors are granted estate tax deductions and capital gains but they will not be able to get income tax benefits until the charity receives all the donations within 50 years.

A new revenue law permitting New Jerseyans to receive income tax benefits from donations might provide an incentive that would greatly serve the 34,000 plus non-profit organizations registered in the state. Additionally, if the changes to DAFs in the ACE act are able to balance restrictions with the increased funneling of aid, then more people might be able to participate in and benefit from charitable giving.