Navigating the Quid Pro Quo Trap – How It Affects QCDs and DAFs
Qualified Charitable Distributions (QCDs) and Donor-Advised Funds (DAFs) are lucrative sources of philanthropic dollars available for current use. Donors often use QCDs and/or DAFs to make tax advantaged annual gifts. In addition, donors make tax smart major or even principal gifts from one of these sources. However, both QCDs and DAF grantmaking rely on donor and charity self-reporting to comply with the rules regarding permissible gifts from these sources.
It is hornbook law that a QCD to charity will only qualify as a QCD if the “entire distribution would be allowable under Section 170” as a charitable deduction. Likewise, it is universally understood that using a donor-advised fund (DAF) to make a grant for a quid pro quo donation is also prohibited. Therefore, both DAF donor advisors and QCD donors may not enjoy quid pro quo benefits that exceed the insubstantial value rules applicable to these gifts. Following tax law, even when the IRS isn’t looking, establishes the credibility and philanthropic motive underlying the preferential tax treatment of charitable gifts.
Date of Gift and Substantiation Rules – Q&A Webinar (FREE) (Originally Scheduled for October 23)
The IRS’s rules for establishing the date of a gift can get arcane quickly. And getting the date of gift right can be important for valuing the gift, and especially at year-end. In this free Q&A webinar, PG Calc consultants Jeff Lydenberg and Edie Matulka will spend a few minutes reviewing common date-of-gift situations and substantiation requirements, then spend the bulk of the hour answering questions from the audience on these topics.
Quick Tip: Changing Investment Assumptions for Trust Projections in PGM Anywhere
From the Blog: Can The Donor “Gift” Her Entire IRA to a Charity – Now, During Life?
Do You Need a Head Start on a “Jump Start” Trust?
Does Mentioning DAFs Encourage More Gifts? Why Testing Matters in Planned Giving Marketing
Two Tax Law Changes Present Fundraising Opportunity This Year
Come See Us at the CGP National Conference – You Will Have Many Chances to Say Hello
Quick Tip: Changing Investment Assumptions for Trust Projections in PGM Anywhere
In PG Calc’s PGM Anywhere software, the investment assumptions are critically important when running projections for charitable remainder trusts (CRTs) and charitable lead trust (CLTs). The default investment assumptions in the software are 3% annual income and 5% annual appreciation. These assumptions mean that the investment portfolio for the proposed trust is presumed to earn income at an annual rate of 3% of the total trust value, and the principal value is expected to increase by 5% of the total trust value each year.
These assumptions, however, are not carved in stone; each software user is able to change those numbers to whatever is deemed appropriate under the circumstances at hand. When users ask us, “What numbers should we be using?” we recommend consulting with whomever will actually manage the investments of the prospective trust. Any well-qualified asset manager should be willing to share their investment assumptions for a reasonable number of years going into the future.
Here is how the default investment assumptions appear:
Once the PGM Anywhere user has determined the numbers to be used in a given situation, they may simply write over the default assumptions. The software allows the user unlimited ability to modify the investment assumptions. PGM Anywhere clients typically limit their investment assumptions to the income earned and annual appreciation rates.
We do not recommend getting into details such as the percentage of income exempt from tax or the percentage of income categorized as qualified dividends, but we DO recommend some consideration for the annual management fee. The default assumption is zero, but we generally recommend using a placeholder of 1% for cases where the gift planning officer is uncertain. Here is what a slightly more cautious approach might look like:
Contact Client Services at support@pgcalc.com or at 888-474-2252 if you have any questions or wish to discuss this matter.
From the Blog: Can The Donor “Gift” Her Entire IRA to a Charity – Now, During Life?
This question comes up from time to time. Some might point out that “gift” is not a verb, but we’ve all heard it used that way, and everyone knows what it means. In our niche area of fundraising, professional gift planners routinely speak with donors about the possibility of making charitable gifts with funds from qualified retirement plans. The Individual Retirement Account (IRA) is a vehicle in which many Americans hold considerable wealth, and it’s only natural to ask whether some of those funds could be used for charitable gifts. It IS possible to use funds from IRAs and other retirement plans to make gifts to charities, however, there are limitations and conditions. Gift planning professionals should be familiar with these unique requirements.
From time to time a rebranding of a planned gift vehicle can raise interest in a little-used gift structure. Most recently, the term of years charitable remainder annuity trust (CRAT) has been given greater curb appeal as a “Jump Start Trust.”
A “Jump Start Trust” is a CRAT established with a minimum gift of $50,000 that pays out 10% each year for a five-year term. It is marketed as a graduation gift, simultaneously providing trust income to a recent graduate and support for the beneficiary’s alma mater.
The trust can be established with a lower gift amount than would be typical for a CRAT because the principal will be released relatively quickly to the charity, ensuring that administrative or investment fees won’t have much time to eat into the trust’s principal.
The short-term CRAT can also be an excellent alternative to the commuted payment gift annuity (CPGA). Unlike the commuted payment gift annuity, which requires at least one year of deferral before payments can be made, the CRAT begins payments in the year of the gift.
In addition, the term nature of the CRAT is locked in. With a CPGA, the annuitant must voluntarily commute the payments after the gift is made. Conceivably, an annuitant could throw a wrench into the gift plan and decide not to commute, setting the charity up to make a lifetime of annuity payments to a very young annuitant.
Lastly, the CRAT insulates the charity from the possibility that a combination of poor investment return and a high payout percentage will result in a gift that costs the charity money (remember 2008?). Should the CRAT principal waste to $0, the CRAT will simply stop payments. If a CPGA wastes to $0, the charity must continue to make the payments specified in the annuity agreement.
If your donor sends you information on the Jump Start Trust and asks why your organization doesn’t offer this gift vehicle, you can assure them that you do! A Jump Start Trust is new sizzle, but not new steak. Its best use may be as a means of sparking conversations about planned gifts in general.
Does Mentioning DAFs Encourage More Gifts? Why Testing Matters in Planned Giving Marketing
In planned giving, success often comes down to understanding why a campaign worked – or didn’t. Too often, nonprofits change multiple elements of a mailing or email at once, then try to draw conclusions about what made the difference. Without disciplined testing, those conclusions are just guesswork.
The golden rule of testing is simple: test one variable at a time. For example, if you want to see whether mentioning donor-advised funds (DAFs) encourages more gifts, run an A/B split test. In one version include the DAF language, in the other leave it out. Keep everything else – the offer, audience, and ask amount – the same. Without isolation, attribution is impossible.
It’s tempting to assume that one highlighted element boosted results. But donor response is shaped by many factors: the appeal itself, the value of the offer, the audience’s capacity, and the timing. Unless you’re comparing identical campaigns with just one difference, you can’t fairly credit any single factor.
How to Run a Clean Test
Isolate a single change (e.g., add DAF language to one version).
Track responses and average gift size across both groups.
Note the gift method (DAF, check, credit card) to see if behavior shifts.
Segment by donor history, especially prior DAF users.
This controlled approach allows you to draw valid conclusions, refine your messaging, and improve your ROI over time. In planned giving marketing, disciplined testing isn’t just a best practice – it’s the only way to separate anecdote from analysis. By focusing on one variable at a time, you ensure that your decisions are driven by evidence, not assumptions.
Want to discuss your planned giving marketing strategy? Call us at 888-497-4970 or email info@pgcalc.com to schedule a conversation with our marketing experts.
Two Tax Law Changes Present Fundraising Opportunity This Year
In our most recent PG Calc Calc-U-Letter client newsletter, we included an overview of the changes in the tax law passed this summer that may affect fundraising. Two of these changes present a fundraising opportunity this year because they don’t go into effect until 2026*: the 0.5% floor on itemized charitable deductions and the 35% cap on the tax benefit from itemized deductions.
Starting in 2026, donors who itemize deductions will earn a charitable deduction only for giving that exceeds 0.5% of their charitable contribution base (their adjusted gross income in most cases). For example, a donor who has a $500,000 contribution base and itemizes $100,000 in charitable contributions will be allowed to deduct only $97,500 of their contributions. If the donor is in the 35% tax bracket, they will lose $875 in tax savings. Every donor who itemizes charitable deductions is affected by this change. The size of the bite the floor takes out of a donor’s tax savings is modest, but real. It may be enough to get donors who itemize to act this year rather than postpone their giving decision indefinitely.
Also starting in 2026, a donor in the highest federal income tax bracket, 37%, will be able to reduce their income tax by only $0.35 for each dollar deducted, rather than the full $0.37. For example, a donor in the 37% bracket who itemizes $100,000 in charitable deductions this year will be able to reduce their federal income tax by $37,000. If they wait until next year to make the same gifts, they’ll be able to reduce their federal income tax by only $35,000, a loss of $2,000 in tax savings. Only a small fraction of donors have enough taxable income to be in the 37% tax bracket and therefore will find the 35% cap an incentive to give this year. On the other hand, your wealthiest donors are in that small fraction. As with the 0.5% floor, for these donors, the 35% cap may be enough to get them to make that major or planned gift this year rather than put off making their gift decision.
Let your donors know about these two reasons to give this year! You can contact our Client Services team at support@pgcalc.com or at 888-474-2252 if you have questions.
* Thank you to PGM Anywhere client Michael I. Friedman, JD, CAP®, Senior Vice President, Planned Giving & Endowment, The Associated: Jewish Federation of Baltimore, for bringing this opportunity to our attention.
Come See Us at the CGP National Conference – You Will Have Many Chances to Say Hello
Join PG Calc in Indianapolis before the Charitable Gift Planners (CGP) Conference for our software training class, Gift Planning with PGM Anywhere – Advanced on Wednesday, October 15. This hands-on training will use PGM Anywhere as a laboratory to model advanced gift plans. If you’ve ever wondered how to fund a flip trust with real estate, or whether to propose a non-grantor or grantor lead trust to your donor, this is the class for you. Participants will model charitable remainder trusts, charitable lead trusts, and retained life estates.
Or, you can join PG Calc Senior Advisor Craig Wruck for his pre-conference workshop: Gift Planning Fundamentals: Tools & Techniques. In this session, you will develop a conversational understanding of these technical topics so that you can speak with confidence to donors and prospects. If you are new to gift planning, need a refresher, or are a development generalist, this course provides an overview of gift planning and the tools you need to make the most of it. The session covers National Standards for Gift Planning Success 3, 13 and 16 (many other standards will be mentioned).
No matter what, be sure to stop by the PG Calc Booth, #41/48 in the Solutions Center, where you can see your PG Calc friends and get caught up on the latest and greatest.
PG Calc • 129 Mount Auburn Street • Cambridge • MA • 02138
