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The Rise of Zombie Philanthropy

    Oct 28, 2024

One of the primary functions of philanthropy is to provide for unmet needs in society not already addressed by taxpayer-funded government programs. Donors who contribute to qualified 501(c)(3) public charities and take itemized deductions come tax time generally receive a tax benefit for the same tax year in which they make their donations. This reduces the tax base, including the dollars available to the government to fund its social programs and other public benefit initiatives. In theory, these dollars should simply shift to charities that can feed the hungry, shelter the homeless, fund cancer research, aid veterans, and carry out other charitable programs. But that is not what is happening with billions of dollars’ worth of these donations sitting in Donor-Advised Funds (DAFs)—at least not on any reasonable timeline.

What is a Donor-Advised Fund (DAF)?

A DAF is a charitable giving vehicle administered by a public charity (referred to as a DAF sponsor) that manages donations on behalf of individual donors. The donor sets up an account with the DAF sponsor then contributes money, securities, or other assets into that account. These funds are then invested and grown tax free. Once the donor makes the contribution, the sponsor has legal control over it and the donor can no longer access the funds for personal use. However, the donor retains the ability to advise the sponsor on how to invest the funds and to recommend specific charities to receive distributions from the account. While in theory DAF sponsors are not required to follow donors’ recommendations, in practice, sponsors tend to rubber stamp their requests.   

DAFs provide donors with the ability to time their charitable contributions during years most advantageous to them for tax purposes without requiring them to commit these dollars to specific charities on a specific timeline. This is a good thing insofar as it discourages impulsive giving to charities that may be undeserving. Donors should always take the time to research a charity’s financial efficiency and governance before giving, and using a DAF buys them extra time to do that.

The downside is that donors who already took tax deductions on their DAF contributions may allow them to languish in their accounts for decades before eventually recommending recipient charities. This practice has caused some critics to coin the term “Zombie Philanthropy” when referring to DAF giving, which, in practice, puts significant charitable resources in a state of limbo, not accomplishing anything charitable.

Scale of the Problem

According to the National Philanthropic Trust there were an estimated $229 billion in charitable dollars sitting idle in donor-advised funds (DAFs) as of the end of 2022, unreachable by the charities these donations were intended to benefit. An estimated 1,401 DAF sponsors existed as of the end of 2022, according to inequality.org. Some are the charitable arms of large, for-profit companies, such as Fidelity Charitable, DAFgiving360 (formerly Schwab Charitable), Vanguard Charitable, TIAA Charitable, and Goldman Sachs Philanthropy Fund. Commercial DAF sponsors such as these charge fees for profit. For example, according to The Washington Post, Fidelity Charitable “paid its parent company, Fidelity, more than $46 million in 2017 to manage its more than $21 billion in DAF assets, tax records show.” This relationship may disincentivize sponsors from encouraging donors to spend down their DAF balances, worsening the scale of the problem.

According to Inequality.org, about 632 DAF sponsors are community foundations that may reinvest the fees they charge into other charitable programs, and another 712 are single-issue sponsors that have a specific goal or purpose and are not tied to a specific geographic area or commercial interest.

Some of the largest or most popular DAF sponsors include those listed above, as well as the National Philanthropic Trust, American Endowment Foundation, and Silicon Valley Community Foundation. Give2Asia is a DAF that facilitates global philanthropy by matching donors with nonprofits and projects across Asia that are working in cause areas like education, environmental, and economic development. The Greater Kansas City Community Foundation is a large DAF that places importance on making a social impact in that region.

DAF Day – New for 2024

According to the 2024 National Study on Donor Advised Funds, 37% of DAF accounts are left unused in a given year. In consideration of this, the nonprofit sector has come together to create an annual day of giving known as National DAF Day, observed for the first time on October 10th, 2024. The intent of this day is for nonprofits, fundraising platforms, and DAF sponsors to encourage donors to give from their DAF accounts by recommending recipient charities and making charitable distributions to them. Donors are encouraged to commit to deploying at least 10% from their DAFs annually.


Correction: There are over 1,400 DAF sponsors in the United States. The number 400 was cited in the video in error.

Conclusion

Total giving declined in 2023 by 2.1% from the prior year once adjusted for inflation, according to Giving USA 2024: The Annual Report on Philanthropy. With DAFs now comprising a quarter of all charitable giving by individuals, it is more important than ever for donors to consider the negative impact of tying up charitable dollars in DAFs indefinitely without a clear spenddown plan. Many DAF sponsors offer donors the ability to set up automated, recurring monthly donations from their DAFs, which is a convenient way for donors to distribute more funds to worthy charities.

 

Consider Donating to CharityWatch Through Your DAF

 

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