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Jul 20, 2020

‘Zombie philanthropy’- how donor advised funds might actually harm organizations during a pandemic.

Donor-advised funding, also known as DAFs, is the process by which the money and assets that is intended to go to a non-profit someday, has no payout requirements, and can virtually sit in a “fund” for decades. The controversial method of charitable giving, also known as “zombie philanthropy,” is also one of the most booming, with more than $120 billion in DAF accounts across the country in 2018, according to the most recent industry estimates. This statistic may be detrimental for charities and nonprofits, especially those that have been hit hard during the COVID-19 pandemic.

In the past, company-sponsored donor-advised funds have not been shown to provide expertise to their donors on how to evaluate charities or identify social impact and community needs.

Charities could actually benefit both fundamentally and financially if the time and energy that goes into putting money in a donor-advised fund and “distributing” it to charitable organizations was spent in gaining knowledge about these organizations and their mission accomplishments.

In our blog post about DAFs from almost a decade ago, we saw how donor-advised funds function during economic recessions when giving is most needed.  Data from the National Philanthropic Trust suggests that donor-advised funds are playing a helpful stabilizing role:  While contributions into donor-advised funds dropped by 8 and 37 percent in 2008 and 2009, grants from those funds actually grew 13 percent in 2008 and fell only ten percent in 2009, still remaining above pre-recession grant levels. As we almost entered another economic catastrophe during the COVID-19 outbreak, how do we ensure that these donor-advised funds continue to distribute grants to charities and nonprofits that need them the most?

DAFs are also notorious for offering the appeal of income tax reductions for donors, allowing them to estimate how much they expect to owe in taxes, and then transfer money into these funds to help balance out what they owe to the government at the end of the year.

Our CEO Allen Proctor once posed the question, “why not make grants by donor-advised funds subject to the same rules that mandate minimum annual grants by private foundations?”  This could potentially curb the stockpiling of DAFS, while preserving the more beneficial traits of these company-sponsored donor-advised funds.

In May, David and Jennifer Risher created the #HalfmyDaf campaign, to inspire donors to pay out at least half of their accounts to charities during the pandemic. The former Microsoft and Amazon executive, along with his wife, are not the first to take action against “zombie philanthropy,” as more and more industry critics begin to call out these abuses.

Since the launch of their campaign, the couple has raised over $2.6 million, as well as receiving praise from others in the industry, hopefully paving the way for other companies to follow suit in the near future.

Nevertheless, it’s unclear if the pros outweigh the cons with donor-advised funds, and if these charitable donations impact the charities as much as they do the donors that write the checks.