Donor Advised Funds: Charitable Spending Vehicles for 21st Century Philanthropy

The donor advised fund (DAF) is changing longstanding giving norms in U.S. philanthropy. DAF contributions now account for around 7 percent of giving by individuals in the United States. About half of those contributions go to national DAF sponsors that have relationships with large commercial investment firms like Fidelity, Vanguard, and Schwab. This Article seeks to advance the understanding of the donor advised fund and to address two of the main policy questions: whether to impose a payout on DAFs and their sponsoring organizations and how to respond to the increased use of DAFs for noncash charitable contributions. Part I of the Article provides a brief overview of DAFs. Part II of the Article discusses the different ways DAFs are viewed – as quasi private foundations, public charity substitutes, or as catalysts for new charitable giving. Each view suggests a different regulatory approach. Part III focuses distinctly on the national sponsoring organization and the reason for its section 501(c)(3) status. The national sponsoring organization’s exempt purpose is to spend money for the benefit of other 501(c)(3) organizations. The Article argues that as an organization that fulfills its mission by spending, it is appropriate for policymakers to require each fund to spend down contributions over a range of years. Part IV of the Article examines the solicitation by DAF sponsoring organizations of charitable contributions of property, including privately traded stock, real estate, fine art, collectibles, and publicly traded securities. The increasing use of DAFs for noncash contributions will accentuate the problems of current law, which include a deduction for unrealized appreciation, overvaluation of contributed property, uncertain benefits to charity, equity concerns, and enforcement. Part IV argues that if Congress intends to retain the subsidy for property contributions, DAFs present an opportunity to improve and lower the cost of the subsidy both by reducing the amount of unrealized appreciation that may be deducted and by basing the amount of the deduction for property contributions on the net benefit to charity.