At a time of staggering inequality, wealthy donors are donating millions to donor-advised funds, or DAFs. Donors can claim substantial charitable tax benefits for their contributions to DAFs, but the money often fails to move in a timely way to charities addressing urgent needs.
The assets held in U.S. DAFs have grown by 376 percent over the past 10 years — rocketing from $34 billion in 2010 to $160 billion in 2020. And DAFs now rake in 15 percent of all U.S. individual charitable giving.
Of particular concern are DAF sponsors that are affiliated with for-profit Wall Street financial corporations. As we have documented, these commercial DAFs provide enormous publicly-subsidized tax benefits to their high-rolling contributors while actively encouraging the warehousing of charitable wealth. And commercial DAFs have been growing explosively.
In fact, the largest commercial DAF sponsors now take in more money each year than our largest public charities. DAFs have seen such phenomenal growth that by 2020, six of the top ten recipients of charitable revenue in the country were DAF sponsors.
One of these commercial DAFs, the Fidelity Charitable Gift Fund, became the top recipient of giving for the first time in 2016, edging the United Way out of its traditional top spot on the Chronicle of Philanthropy’s annual list of top charities.
By the following year, four commercial DAF sponsors had broken into the top 10, along with the Silicon Valley Community Foundation — a community foundation at which 98 percent of incoming contributions go into its DAF program.
Since 2018, the Chronicle has ranked DAFs in a separate list so that they don’t drown out the operating nonprofits. But if the lists remained combined it would reveal a steady displacement of working charities in favor of DAFs.
Through the charitable tax deduction, taxpayers subsidize contributions to DAFs by up to 74 cents on the dollar. This gives us all an interest in making sure that the money stored in DAFs is actually used for the greater good, rather than serving as tax avoidance vehicles for the wealthy or lining the pockets of commercial money managers. It’s time to move the money out of DAFs — and we’ve outlined a number of reforms that would make this happen.