Moving money into communities should be the top priority of everyone in philanthropy. But, currently there is a growing problem of significant dollars being put into donor advised funds without any requirements to "spend it down." This means a lot of charitable dollars are not getting to charitable organizations. A recent article in the New York Times highlighted this problem and suggested solutions I think are useful to consider.
This article specifically is talking about donor advised funds. At MRG, one of the ways we support progressive people is through donor advised funds. I agree that they are a great tool when people need time to make their giving decisions. But, the impact on the community can be significant if money, at an increasing rate, is being "locked up" in donor advised funds without any pressure to move it into communities. I appreciate the author's proposal that there be time limits on how long donor advised funds can exist without being distributed.
Here are the biggest problems with the situation this article is describing:
First, most donors are setting up funds at large financial institutions such as Goldman Sachs. These companies make money from fees these funds generate. Unlike a foundation that exists to get the money out in the community, these institutions have no incentive to move the money. (Actually, they have a disincentive: when the money leaves the fund, they can no longer collect investment and management fees.)
And with more charitable dollars being used to set up donor advised funds, less money is getting to organizations and communities. So the donor gets the tax break, the financial institution gets the fees and the community often doesn’t get anything in the near future. Thus, the author's idea that "President Obama and Congress should take steps to ensure that money qualifying for the deduction goes to serve charitable causes within a reasonable period of time" is a great solution.
The one place where I differ from the author of this article is his critique of endowing door advised funds. There is something to say for donors who want their giving to go on in perpetuity. Perhaps this will be the topic of a future blog post.
At MRG, when donors set up funds they have set time periods by which they need to make their decisions. And they have staff members available to help them if they need help deciding. With MRG’s donor advised program -- unlike the huge financial institutions that house much of the donor advised funds in the country -- MRG invests its money in socially responsible ways so that our investing supports our social justice values.
Donor advised funds are a great tool for many people. I often encourage people to set up donor advised when it makes sense for them. But, at the end of the day, money needs to move to those groups the donor cares about for there to be any real impact.