In every community, there are nonprofit charities that serve real needs: local food pantries, programs addressing the opioid crisis, the Red Cross chapters that come to our aid after a storm. Charities provide vital services to the people and places they serve.
These organizations lean heavily on volunteers, fundraisers, and donors. And most ordinary donors give without consideration of a tax break — people give their time, treasure, and talent without keeping score.
For many ultra-wealthy donors, however, charity can be motivated not just by generosity, but also by tax avoidance.
A case in point is the surge of donor-advised funds, or DAFs, created in recent years by wealthy donors. We studied these accounts in“Warehousing Wealth,” a new report for the Institute for Policy Studies.
A DAF is like a mini-foundation, a holding account for giving — but with substantially greater benefits and conveniences for the donors.
When donors contribute to a DAF, they take a tax deduction — often a big one. But those funds can then sit in the DAF for years, even generations, before they’re granted out to charities working to meet real social needs.
Originally created by community foundations, DAFs have been recently adopted by for-profit Wall Street firms like Fidelity Investments, Goldman Sachs, and Charles Schwab.
These firms created charitable DAFs to serve their wealthy clients’ philanthropic goals, while happily charging fees to keep funds under management. They have no legal incentive to see funds move in a timely way to active charities, so corporate-affiliated DAFs have been growing exponentially in recent years.
A decade ago, the biggest donation recipients in the United States were the United Way, the Red Cross, and the American Cancer Society. Today, it’s the Fidelity Charitable Gift Fund. In fact, six of the ten largest charity recipients are DAFs.