A change in the climate of charitable giving

The United States leads the world in generous giving, but the Great Recession, declining church attendance, and the wealth created by the booming tech industry have contributed to a shift in how Americans give. Household donations have dropped, but the total amount given to charity continues to rise, driven by corporate donors like Google and Twitter and wealthy foundations started by tech billionaires.

Donor-advised funds (DAFs) provide something of a hybrid: Major financial institutions manage the funds, but individuals can cheaply and easily open an account. An account holder can contribute money or assets like land or cryptocurrency to the fund and immediately get a tax deduction. The owner can then leave the investment to grow over time or use it to send a grant to the registered charity of his or her choice. Proponents of the funds say they give individual donors flexibility and enable them to give like a foundation without the accompanying costs and overhead. But critics argue donor-advised funds tie up money and assets indefinitely.

“At a time when charities need help more than ever, significant private sector resources are sitting in philanthropic vehicles that could be used to support charities and the millions of people they serve,” says the website of the Initiative to Accelerate Charitable Giving (IACG), which wants to reform regulations governing donor-advised funds. Its proposal recommends Congress adjust tax policy so fund participants can lower or avoid taxes on their accounts by increasing the yearly payouts or limiting the fund’s lifespan. The goal is to get donations out of the fund and to the nonprofits faster.

American Enterprise Institute scholar Howard Husock wrote that the theory behind the IACG’s proposal “runs counter to what any good endowment manager understands: When funds increase in value, they make future ongoing charity and potential big ticket gifts possible. Both are important—and it’s best to leave the decision up to individual donors who are engaged with organizations directly.” He pointed out that as donor-advised fund accounts increase, donors have the option to increase their giving in response to disasters—which actually happened in 2020. A Candid study of philanthropy during the pandemic found that out of the $20 billion given towards pandemic relief, $14.6 billion came from three donor advised funds.

Husock wrote: “Personal charitable giving accounts—or donor-advised funds—are the latest innovation in American philanthropy that is keeping thousands of small nonprofits across the country alive today.”