Donor-advised funds, or DAFs are financial intermediaries that take in charitable gifts from donors and then grant the money to active charities designated by the donor. Donors claim their tax deduction up front when they donate to the DAF before deciding which public charities the money should go to. Unlike private foundations, which must distribute 5 percent of their principal assets annually, DAFs can continue to re-invest their funds indefinitely, without ever distributing them to charity. So, by creating their own DAFs, Wall Street investment firms like Fidelity and Charles Schwab are enabling ultra-wealthy clients to collect a charitable tax break without necessarily supporting a charity. In fact, without an incentive to disperse the funds quickly, the underlying incentive for financial institutions is to hold on to the assets — and collect fees on them — for as long as possible. In essence, the funds become more like long-term investments that grow over time, not timely donations to an active charity.
DAFs have been adopted with a vengeance by for-profit Wall Street firms like Fidelity Investments, Charles Schwab and Vanguard. And the lax rules around these giving vehicles are leaving DAFs ripe for abuse in this aggressive new market. For every dollar a millionaire or billionaire gives to a donor-advised fund, the US taxpayer provides between 37 and 57 cents of the gift in the form of lost tax revenue, according to Boston College law professor and charitable-giving expert Ray Madoff.
In fact, six of the top 10 biggest recipients of charitable giving in the United States in 2017 were DAFs. Donations to DAFs grew by 66 percent in the past five years — compared to 15 percent for all individual giving nationwide.
The folks giving to DAFs aren’t middle-income families. The average donor to a DAF makes more than $2 million annually. That puts them in the top one-tenth of 1 percent of households.
DAFs significantly over-report how much they do distribute to charity year over year. According to the measure used by the Internal Revenue Service (IRS) and the Chronicle of Philanthropy, DAFs generally pay out around 16 percent of their assets in a given year. That’s the rate the IRS found for Fidelity in 2014, the most recent IRS data available. That year, Fidelity itself claimed a payout rate of 28 percent — nearly double. With each passing year, more funds are going to the financial advisors running DAFs, instead of feeding the hungry and housing the poor.
In one telling example, the United Way of Silicon Valley folded in 2016 amidst stagnant contributions. At the same time, the Silicon Valley Community Foundation, a DAF, received more than $1 billion in annual giving.
https://truthout.org/articles/how-the-rich-exploit-charitable-giving-rules-to-hoard-their-fortunes/
DAFs have been adopted with a vengeance by for-profit Wall Street firms like Fidelity Investments, Charles Schwab and Vanguard. And the lax rules around these giving vehicles are leaving DAFs ripe for abuse in this aggressive new market. For every dollar a millionaire or billionaire gives to a donor-advised fund, the US taxpayer provides between 37 and 57 cents of the gift in the form of lost tax revenue, according to Boston College law professor and charitable-giving expert Ray Madoff.
In fact, six of the top 10 biggest recipients of charitable giving in the United States in 2017 were DAFs. Donations to DAFs grew by 66 percent in the past five years — compared to 15 percent for all individual giving nationwide.
The folks giving to DAFs aren’t middle-income families. The average donor to a DAF makes more than $2 million annually. That puts them in the top one-tenth of 1 percent of households.
DAFs significantly over-report how much they do distribute to charity year over year. According to the measure used by the Internal Revenue Service (IRS) and the Chronicle of Philanthropy, DAFs generally pay out around 16 percent of their assets in a given year. That’s the rate the IRS found for Fidelity in 2014, the most recent IRS data available. That year, Fidelity itself claimed a payout rate of 28 percent — nearly double. With each passing year, more funds are going to the financial advisors running DAFs, instead of feeding the hungry and housing the poor.
In one telling example, the United Way of Silicon Valley folded in 2016 amidst stagnant contributions. At the same time, the Silicon Valley Community Foundation, a DAF, received more than $1 billion in annual giving.
https://truthout.org/articles/how-the-rich-exploit-charitable-giving-rules-to-hoard-their-fortunes/
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