Cash in donor-advised funds is piling up so high that philanthropists, nonprofits, and perhaps even Congress can’t ignore their often controversial influence.
Assets in these funds totaled more than $110 billion in 2017, topping $100 billion for the first time. It’s clear the giving vehicles are increasingly disrupting traditional ways of doing good in America:
- Fidelity Charitable Gift Fund, the biggest sponsor of donor-advised funds, could soon be the world’s largest grant maker. It gave away $4.5 billion in 2017, just shy of the $4.7 billion distributed the Bill & Melinda Gates Foundation.
- Contributions to Fidelity reached $6.8 billion in 2017 — nearly twice the $3.5 billion of United Way Worldwide, the largest traditional charity in America and an anchor for the nonprofit field in many communities.
- The Silicon Valley Community Foundation, which was founded just a decade ago when two California grant makers merged, is already challenging the venerable Ford Foundation to become the nation’s second-wealthiest foundation. Fueled almost exclusively by giving to its donor-advised accounts, the grant maker’s assets reached $13.5 billion in assets in 2017, edging past Ford.
Who’s Giving to the Funds?
Such growth is driven in part by the next generation of philanthropists, including many tech moguls. Mark Zuckerberg, Sheryl Sandberg, Steve Ballmer, Jan Koum, and Laurene Powell Jobs each have recently made megamillion-dollar contributions to donor-advised accounts, with Ballmer putting in $1.9 billion.
The accounts aren’t just a Silicon Valley toy, however. Individuals making fund gifts of at least nine figures in 2018 include an NFL team owner, a Vail ski resort owner, and a Wisconsin newspaper and media owner.
What Are Charities Doing?
Charities are scrambling to react to this new means of philanthropy, particularly given tax-law changes enacted in 2018. Those changes reduced the tax savings from making contributions, which may encourage donors to bundle their gifts into one year and skip the next.
Some organizations see the funds as a golden opportunity: They say the money has been earmarked for charity and will go to whatever groups step up to ask for it.
The Pan-Mass Challenge, a nonprofit bike-athon in Boston that embraces and promotes donor-advised-fund giving, has seen contributions from Fidelity Charitable jump more than fourfold over the past five years, to $3.5 million.
“These accounts are just growing; the billions in them are astounding,” says Michele Sommer, the group’s chief financial officer.
Not everyone is so gung-ho. A Fidelity-led effort that created a tech tool to spur giving has sputtered and is likely to be revamped soon. The Greater Kansas City Community Foundation is moving to withdraw.
“It just wasn’t working for us,” says spokeswoman Leanne Breiby. “It never got traction with our donors or nonprofits.”
Meanwhile, an increasing number of charities are setting up donor-advised funds of their own, often housing the charitable investments in return for guarantees of gifts to the organization itself. Bloomberg Businessweek reported that a dozen of 25 elite universities sponsor donor-advised funds. Other nonprofits that have opened funds of their own include the American Heart Association, the Nature Conservancy, and United Way Worldwide. “We saw the writing on the wall,” John Hayes, a senior vice president at the American Heart Association, told the Chronicle.
Why Are the Funds Criticized?
The mountains of money in donor-advised funds are intensifying scrutiny and debate about their merits and influence.
Much of the criticism is directed at Fidelity Charitable and other sponsors of donor-advised funds that are nonprofit spinoffs of financial-service firms. These organizations typically pay their for-profit parent to manage the money in the funds, which means they have a financial incentive to accumulate assets and hold onto them.
Commercial funds “are essentially an asset-accumulation strategy dressed up as charities,” wrote Drummond Pike, founder of the Tides Foundation, in the Chronicle recently. “Anyone who thinks any of these institutions decided to start offering donor-advised funds purely from a desire to prompt more giving to nonprofits needs a lesson in altruism.”
Several recent investigations of donor-advised funds focused on how they are less transparent than traditional giving. Federal law requires gifts to a private foundation to be disclosed publicly, but that’s not the case with sponsors of donor-advised funds. A Bloomberg investigation dubbed them “black-box charities.”
Interestingly, a Chronicle analysis found that a small number of foundations direct almost all their grants to donor-advised funds, effectively hiding the ultimate charitable destination for those dollars.
The opaque nature of donor-advised-fund gifts became a hot topic in politics this fall when it was reported that Matthew Whitaker, President Trump’s choice as interim attorney general, had been paid $1.2 million in salary for leading a nonprofit funded through donor-advised funds. The backers of the group were anonymous, and questions were raised as to whether it was as a political campaign organization, not a charity.
“By design, charities are not supposed to be mysterious,” wrote Boston College Law School scholar Ray Madoff in the Washington Post.
Will Congress Act?
Critics of donor-advised funds want the new Congress to regulate them and bring about some transparency. They also want to force account holders to pay out a certain percentage of assets annually.
In 2014, when Congress was considering a tax overhaul, Rep. Dave Camp, a powerful legislator on tax issues, proposed taxing donor-advised-fund assets that aren’t given to charities within five years. The measure didn’t get a vote on the House floor, but some consider that proposal a model.
The Council on Foundations and other nonprofit associations oppose legislating a payout requirement, but it’s not clear what will happen with the new Congress.
“There’s a robust conversation about whether a payout rate would be a bad thing,” says Hadar Susskind, senior vice president for government relations at the Council on Foundations.
Correction: A previous version of this article mistakenly said the Silicon Valley Community Foundation is rivaling Ford as the largest private foundation. Silicon Valley is a community foundation whose assets recently topped Ford’s, therefore moving it into the top ranks of wealthy philanthropies.
