Opinion: Donor-Advised Funds a ‘Bad Deal’ for Society

Two prominent critics of donor-advised funds lay out their case against the fast-growing giving vehicles in an essay for The New York Review of Books, calling them “a bad deal for American society.”

Reiterating arguments they have made in other outlets (including The Chronicle), Boston College law professor Ray Madoff and nonagenarian philanthropist Lewis Cullman write that DAFs, as they are known, represent “a major flaw in the financing of charities today,” stockpiling billions of dollars in donated funds with no timeline for putting them to philanthropic use.

Donors receive immediate tax benefits for giving to DAFs, many of which are run by commercial financial firms like Fidelity and Vanguard. The fund managers make grants at their own discretion and face no regulations on when to disburse the money or in what amounts. The donations can remain untouched for years, generating management fees for the companies but “producing no social value,” Ms. Madoff and Mr. Cullman assert.

“The American system depends on an adequate flow of private donations to working charities, and anything that disrupts this flow can have critical consequences for charitable organizations and the people they serve,” the authors write. They call on Congress to enact time limits on when DAF donations must be allocated to nonprofits.