Once more, I read about how donors are abusing Donor Advised Funds (DAFs). Billions of dollars are locked in these funds, rather than going to charity during the COVID-19 pandemic — when nonprofits need these funds the most, critics say. (Washington Post 6/24/2020 article)
Well, yes, that’s true.
If you create and give to a DAF, and the money sits in the fund earning interest, you’re getting a tax benefit now — but the public benefit hasn’t occurred and may not occur for many years. Further, it’s true that if the fund is managed by an investment firm, such as Fidelity or Vanguard, they’re the only ones benefiting while the funds sit unused, due to investment fees. (If your DAF is housed at a community foundation, the fees go to help the community foundation support its city or region, so in that case the fees are giving back.)
This critique always focuses on the difference between these gifts going directly to charity versus the gifts going to DAFs. The donor gets the same tax benefit, but the public benefit is delayed in the case of the DAFs.
For a moment, let’s consider the difference between a DAF and a private foundation. A donor who creates a private foundation gets a tax benefit at the time of the gift, although the benefits can be slightly less attractive than a gift to a public charity, depending on the gift. The private foundation is required by law to give away 5 percent of its assets each year. The organizations that manage DAFs report that their funds, taken as a whole, give away about 20 percent every year. Thus, DAFs — again, taken as a group — are getting money into the hands of the charities that need it at a much higher rate than the private foundations.
Critics complain about the $120 billion “locked away” in DAFs. The top 10 U.S. private foundations alone have assets of more than $150 billion.
The critics of DAFS have a valid argument, and I hope the #HalfMyDaf campaign will be successful. But those critics that exhort DAF holders to distribute more should be aware that the DAFs’ wealthier brethren (private foundations) don’t have the same obligation and presently distribute much less on a pro rata basis.
(Note: I would be happy to send you copies of the linked articles if you’re unable to access them.)