More Charities Express Opposition to Legislation Reining In Donor-Advised Funds
Are donor-advised funds (DAFs) “warehouses” where money is “parked” instead of distributed to charities that could put it to work? Or are DAFs “greenhouses” where donor funds grow before being given to worthwhile causes?
Senators Angus King and Chuck Grassley say too much donor money is parked, earning interest when it should be doing good. They introduced their Accelerating Charitable Efforts (ACE) Act, in June.
If enacted into law, DAFs would be required to give away more money sooner, or pay taxes for holding on to it longer. Community foundations and DAFs worth less than $1 million are exempted.
Major foundations named for famous Americans—the Ford Foundation, the W. K. Kellogg Foundation, The Kresge Foundation, and The William and Flora Hewlett Foundation—support the legislation. So do these groups: the Institute for Policy Studies, Patriotic Millionaires, Arnold Ventures, Global Citizen, the North Star Fund, and the Wallace Global Fund.
John Arnold of Arnold Ventures encourages wealthy Americans to give away their wealth to worthy causes and calls DAFs “zombie charity.” He says “tax-free hoarding runs counter to the spirit of the rules governing charitable deductions” and “contributes to a harmful inefficiency that infects all too many foundations.” He says the new legislation would increase giving to charities by $20 billion a year.
But a growing number of charities, including many Christian groups, are speaking out against the ACE Act, with one saying it “vilifies” DAFs and will “handcuff” donors.
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The Philanthropy Roundtable recently posted a story with a headline saying that “285+ National and Community Groups…Oppose King-Grassley Bill to Restrict Charitable Giving.” Of the 35 national organizations cited, eight are Christian groups:
- Evangelical Council for Financial Accountability;
- Citygate Network (formerly Association of Gospel Rescue Missions);
- Council for Christian Colleges and Universities;
- United Church of Christ’s Council for Health & Human Service Ministries;
- Good News Communications, Inc., a firm that provides marketing and communications services to charities and others;
- Lutheran Services in America, which works with health and human service organizations affiliated with the Evangelical Lutheran Church in America or the Lutheran Church–Missouri Synod;
- Mennonite Health Services, which works with Anabaptist groups;
- One Mission Society, an evangelistic and church planting group founded in 1901.
Some Christian philanthropic experts embrace the rationale behind the proposed legislation, but say that this particular bill could wind up depressing giving, while placing undue burdens on donors and the advisory firms that serve them.
Al Mueller, CEO of Excellence In Giving, a philanthropic advisory firm, is theologically opposed to DAFs. “Uncle Sam says you made a gift when you put money in a DAF, but I’m not sure God would say you made a gift” until it goes to a nonprofit that puts it to use, he said in a recent interview. “Would God approve a gift that only you benefit from? For me, a gift means out the door and into the hands of an operating nonprofit.”
But Mueller is no fan of the ACE Act, believing the proposed “solution” could make problems worse and saddle donors and accountants with unwieldy new duties.
DAFs a growing force in philanthropy
The only thing everyone agrees on is that DAFs, once a little-used vehicle favored by rich people with tax problems, have become a big business.
Last year, Americans contributed $38.1 billion to DAFs, according to National Philanthropic Trust’s 2020 Donor-Advised Fund Report. That’s an 80% increase in contributions since 2015.
First created 90 years ago, DAFs took off after 1991, when Fidelity Investments launched its Fidelity Charitable Gift Fund. Since then, other major financial players have entered the field, including Schwab Charitable, Vanguard Charitable, Bank of America Charitable Gift Fund, and Raymond James Charitable.
There are also a growing number of Christian DAFs, including National Christian Foundation, WaterStone, The Signatry, Hope Christian Community Foundation, and In His Steps.
The financial firms that operate DAFs face a significant conflict of interest. The more money they give to charity, the less they make in fund management fees.
U.S. tax law gives generous tax breaks to charitable donors, in part because charities provide many benefits to millions of Americans. DAFs pose a unique challenge to this system, because they offer donors immediate tax deductions, but they hold much of the donated funds for years or even decades. Currently, DAFs hold more than $140 billion that has been designated for future charitable gifts.
King and Grassley say Americans shouldn’t get tax benefits today for gifts that will be delivered to charities tomorrow or never.
But the Philanthropy Roundtable criticized the legislation in an opinion piece provided to The Hill. They argue that the law would reduce money flowing to charity, saying “donors would lose the ability to save and grow their gifts over time, and charities would receive smaller gifts than might otherwise be the case.”
Philanthropy Roundtable, which promotes “ideals of limited government, personal responsibility, and free enterprise,” also criticized the bill’s threats to donor privacy, an issue recently addressed by the U.S. Supreme Court.
Although Grassley has gone after televangelists, he’s a committed Baptist who doesn’t vilify good charities, and has earned 100% grades from two powerful evangelical political organizations, Family Research Council Action and Focus on the Family Action.
“Charitable dollars ought to be doing the good they were intended for, not sitting stagnant to provide tax advantages for some and management fees for others,” said Grassley in a statement.