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