I've attended many of your webinars and I think you've covered this question, but I can't seem to find the actual back-up to reassure me that I'm remembering correctly. Can a donor fulfill a legally binding pledge by making a payment through a United Way donor designation program? I'm pretty sure that he can't/shouldn't, but would like to have some back-up before I tell him no.
You probably remember my saying that a donor cannot fulfill a pledge by making a gift from a donor advised fund or a private foundation. With a donor advised fund, the donor who recommends a grant to fulfill a pledge is seeking to use the funds of the sponsoring public charity for the donor/advisor’s personal benefit, in violation of the DAF rules. With a private foundation, a disqualified person would be using foundation assets for direct personal benefit and would be engaging in a self-dealing transaction. Both situations involve using funds belonging to another organization for personal benefit and would impose an excise tax on the donor.
With a United Way donor-designation program, where the donor essentially makes an earmarked grant through the United Way to the ultimate recipient charity, I don’t think the rules would be the same. The donor is not using United Way funds to fulfill the pledge, but is making the gift to United Way only on the condition that some or all of it will be transferred directly to the beneficiary charity. The donor is directing the use of the donor’s own money for another charity. (FASB Accounting Guidelines for Contributions Received and Contributions Made make clear that contributions received by an intermediary entity are not treated for financial accounting reporting as contributions received by the intermediary.) I don’t think there is a legal impediment to using a true donor designation program, where the United Way has no discretion and is obligated to transfer funds to the ultimate recipient, to fulfill a pledge of the donor to the ultimate recipient.
It may not be the most efficient way to fulfill the pledge if the United Way imposes a significant administrative fee on the transaction or applies a type of bad debt discount for anticipated failure of other donors to meet their pledges to the United Way. But if there is no friction loss on the transaction, or if it allows the donor to meet an expectation for support of the United Way, it may be an appropriate gift to make.