Donor-Advised Funds: A Tool for Redistribution or a Vehicle for Wealth Hoarding?

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Brief DAF History

Donor Advised Funds, first established in 1931, were created as a tool for donors to make charitable contributions. Though it may appear innocuous, the DAF structure offers an immediate tax benefit to be enjoyed by donors who are free to recommend grants from the fund over any period of time (or not at all). Over the decades, DAFs have become a more popular charitable vehicle among High Net Wealth & Ultra High Net Wealth individuals, with over one million DAFs in existence as of 2020. 

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A note on terminology:

  • A DAF holder is an individual who puts their money into a DAF.
  • A DAF provider is the organization or entity that oversees the DAF and issues the donations. All DAFs are under the auspices of a DAF provider.

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DAF Structures that Uphold Wealth Hoarding and Capitalist Control

For many, DAFs have been used as a vehicle for wealth hoarding and virtue signaling while retaining all control over decisions about where philanthropic dollars go. We have identified three of the most common patterns that inhibit redistribution:

 

    1. The immediate tax deduction incentivizes DAF creation, not redistribution.
    2. Donation detour: money often gets parked in a DAF for years, decades, or generations.
    3. Hidden figures: the system involves a severe lack of transparency about where DAF contributions are actually going

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Advantages of a DAF for the Purposes of Redistribution

 

    1. DAFs can keep you committed to your redistribution goals.

    2. DAFs can help keep you organized.

    3. DAFs can help you to get money out the door faster.

    4. DAF fees give you an additional opportunity to support a social justice funder you are currently funding.

    5. DAF donations may be easier to process and preferable for beneficiary organizations.

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If You Have A DAF or Are Considering Creating One

 

  1. Release control.
    Upon contributing money to the DAF, recognize that the money in that fund should be considered as earmarked for swift and intentional redistribution.

  2. Pursue values-aligned stewardship.
    Most DAFs are held with major financial institutions that are not aligned with social justice values, often platform organizations that further systemic oppression, and focus on growing assets through Wall Street investments. Although fees may be higher, DAF providers with values alignment will enable you to support frontline movements as opposed to mainstream financial institutions.
  3. Look for a DAF provider with a minimum payout requirement.
    Some aligned DAF provider organizations have their own DAF spend-down requirements to ensure the effective distribution of resources. Since there is no legal requirement for DAF payout, these policies are very important.
  4. Make a plan and hold yourself accountable.
    Remember that once the funds are in the DAF, unless your funds are held by an organization with a payout requirement, there is nothing ensuring that the money goes out the door. Hold yourself accountable through your RG community, cross-class accountability relationships, and/or a radical financial advisor.
  5. Consider your investments.
    As with all investments, we recommend heeding the Transformative Investment Principles call to pull money off of Wall Street and invest in community wealth building. However, since a DAF is not intended to be an investment, you should prioritize the expeditious distribution of your DAF to movement organizations.
  6. Build relationships & solidarity.
    When distributing funds from your DAF, make sure to build relationships with the organizations you give to and make yourself known to them. Send an email before your contribution with the name of your DAF to alert the organization to the incoming funds. 

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Limitations of DAFs for Redistribution

DAFs are one tool in your redistribution toolbox, but their limitations mean they should be used alongside other strategies for giving.

 

  1. Funds in a DAF cannot be given to individuals.
  2. DAF money cannot be sent directly to international organizations.
  3. DAF money cannot be used for political giving.
  4. Although it happens rarely, a DAF provider is technically not mandated to transfer the funds where you advise them to go.
  5. Using a DAF to redistribute means taking advantage of a tax loophole designed to benefit the wealthy.

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DAF Family Organizing 

In the case that your family has a donor advised fund, this guidance can be useful in organizing family members towards the effective and ethical redistribution of the DAF. 

 

Ask questions: 

    1. Where is the DAF currently housed?What are the current assets sitting in the DAF? How long have they been there?
    2. What has been the distribution rate over the DAF lifetime? Is there an annual target for what percentage of the DAF funds are distributed to eligible organizations?
    3. What past giving has been done through the DAF? What are the giving priorities for the DAF?
    4. Is the money in the DAF currently invested? If so, where?


Orient to the challenges & potential solutions: 

    1. If the DAF is held at a major financial institution or otherwise unaligned institution, encourage family members to consider aligned DAF providers (see below for a list of aligned DAF sponsors).
    2. Once you are aware of any giving priorities for the DAF, identify movement-aligned giving opportunities.
    3. If your family’s DAF is currently invested and you are unable to achieve full alignment with the Transformative Investment Principles at this time, speak with your family about maintaining a shorter timeline for fund distribution, rather than growing the DAF for years.
    4. Even if the DAF provider you use invests in accordance with the Transformative Investment Principles, remember that funds in a DAF should not be thought of as an investment in the solidarity economy. Money in a DAF should be redistributed to frontline movements as soon as possible.
    5. If your family has not been actively redistributing their DAF and letting the funds sit, familiarize yourself with existing campaigns to advocate for DAF spend down and share your learnings with your family (see below for more resources).
    6. If you are connected to a family foundation, check to see whether the foundation ever puts funds into DAFs as a way of meeting the 5% minimum payout, thus circumventing the payout requirement without actually distributing any money directly to recipient organizations.  

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DAF Calls to Action

We encourage you to participate in campaigns and initiatives that are fighting to reduce wealth hoarding and hasten the speedy redistribution of funds that are sitting in DAFs.

 

  • The Initiative to Accelerate Charitable Giving, a member network of foundations, nonprofits, and philanthropists, is advocating in Congress for the Accelerate Charitable Efforts (ACE) Act which contains a number of critical DAF reforms, including a policy that would make tax benefits contingent upon the total payout of the DAF within a 15-year span. The ACE Act would also prevent foundations from parking their money in DAFs as a way to meet the 5% minimum payout requirement.
  • The #HalfMyDAF campaign is incentivizing the redistribution of money in DAFs through a matching donation program.
  • Amalgamated Foundation runs a campaign called Hate Is Not Charitable, where they draw attention to the ways that DAFs are used to fund hate groups, and issue calls to action to DAF holders and DAF providers. 

 

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See the full resource for a partial list of DAF providers with spend down requirements. You can also contact your local community foundation to learn about their DAF options. These foundations may not have minimum spend down requirements, so we encourage you to maintain rigor around the distribution of DAF funds if you pursue this option. 

If you have any additional questions please contact Sahana at sahana@resourcegeneration.org or Leah at leah@resourcegeneration.org.

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