Popular press likes to sensationalize. But you knew that. Lately, the tag of “zombie philanthropy” has been applied to the increasingly popular Donor Advised Fund (DAF) category. Why zombie? The thinking is that donors make gifts that benefit themselves via charitable income tax deduction received and the elimination of capital gains taxes on appreciated assets but that the funds stagnate and “never really get to real charities.” This has become a popular outcry and there is a small contingent of reformers who want to change the rules to make DAFs look more like private foundations. Of course, the pundits refuse to look at the facts.

DAFs are booming because they are convenient and simple. It is often a challenge for donors to make a decision about where to ultimately give their charitable dollars and when giving a more significant sum of low basis assets, picking and managing more than one beneficiary while facing a deadline can become cumbersome. So, one stop giving eases the execution of the gift. Giving should be well considered and thoughtful not rushed and then regretful.

Fidelity, the largest DAF sponsor keeps through statistics on their funds. In their most recent giving report, they note that grants are up 28% and that most donors give away 76% of their gift within 3 years of their original contribution. This rate is much higher than the distribution requirements of Private Foundations.

There is no zombie philanthropy. Once the money is given to a DAF, it no longer benefits the family in any way. It’s going to eventually make it to some program that the donor and his family want to support. Perhaps, it’s helping to teach the next generation about the family’s moral and ethical values at the same time.

DAFs have made giving easier. Nothing wrong with that

I bought myself some new kitchen knives a week or two ago. I do all the cooking in our household and the pandemic has caused me to spend a lot more time prepping and cooking. No problem, I enjoy it. Most don't know that I spent my first twelve years of employment in the restaurant business including two years in the kitchen. Back then, our knives were excellent quality and a professional knife service brought us new, sharp knives weekly. Prior to COVID 19 changing everything, my mediocre tools were acceptable since I only needed them now and then. Now, cooking, chopping, cutting, preparing food daily, the better tools make a huge difference in my enjoyment and the ease of my work.

As advisors, we need the best tools. Some of those tools come from our own internal commitment to acquire them because they are things we need to learn, things we don’t know yet. We not only need the great tools, we need to know how to use them properly. A good knife is sharper. So is a good adviser.

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