Donor-Advised Funds Being Used to 'Warehouse' Wealth, Report Argues

Donor-Advised Funds Being Used to 'Warehouse' Wealth, Report Argues

Donor-advised funds are claiming a larger share of charitable dollars at the expense of U.S. charities, with the share of individual giving directed to DAFs nearly doubling in recent years, from 4.4 percent in 2012 to 8.3 percent in 2016, a report from the Institute for Policy Studies finds.

The report, Warehousing Wealth: Donor-Advised Charity Funds Sequestering Billions in the Face of Growing Inequality (48 pages, PDF), found that donor-advised funds are the fastest-growing recipient of charitable dollars in the United States, with contributions to DAFs growing from $13.98 billion in 2012 to $23.27 billion in 2016 — a 66 percent jump, compared with a 15 percent increase in overall individual giving across all recipient categories. Fidelity Charitable, the largest of the nation's donor-advised fund sponsors, topped the Chronicle of Philanthropy's list of the largest charities ranked by fundraising revenue in both 2015 and 2016, when six of the top ten recipients on the list were donor-advised fund sponsors.

According to the report, the average DAF donor is a member of the wealthiest one-tenth of 1 percent of Americans — those with annual income over $1 million — who uses his or her donor-advised fund primarily to avoid capital gains taxes on non-cash appreciated assets. "Of particular concern are the growing number of DAFs founded by for-profit Wall Street financial corporations that provide incentives for the warehousing of wealth," the report's authors write, before noting "the risks an unregulated DAF system poses to the public interest and the charitable sector." Those risks include the lack of a mandatory payout requirement; declines in overall DAF payout rates; the delay in public benefits deriving from donations "warehoused" in donor-advised funds; and tax loopholes that reduce transparency and accountability on the part of DAF donors.

To ensure that the public benefits from individual contributions to donor-advised funds, the report's authors call for a number of policy changes, including requiring that contributions to donor-advised funds be distributed within three years; allowing donors to take a tax deduction only after funds have been paid out to a charity; and barring private foundations from donating to donor-advised funds.

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"Report: Warehousing Wealth." Institute for Policy Studies Press Release 07/25/2018. "Warehousing Wealth: Donor-Advised Charity Funds Sequestering Billions in the Face of Growing Inequality." Institute for Policy Studies Press Release 07/25/2018.