Boston College Law professor Ray D. Madoff has collaborated with philanthropist Lewis B. Cullman in “The Undermining of American Charity,” an essay in the newest issue of the New York Review of Books. Madoff and Cullman make the case against commercial donor-advised funds (DAFs), writing that they are “alarmed” that traditional American charitable giving is being displaced by the rise of DAFs and that the funds undermine “our nation’s highest philanthropic ideals.”
Financial institutions like Fidelity, Schwab, Vanguard, Goldman Sachs, and others have created charitable organizations for the purpose of holding donations, awaiting donors’ instructions for eventual charitable distribution. These donations provide maximum tax benefits for donors and management fees for the financial industry, but are subject to no further requirements for their distribution to charity. Unbeknownst to most Americans, these “charitable middlemen” are among the most popular charities in the US, having received almost $20 billion in 2014 alone (the most recent year for which statistics are available).
The rise of commercial DAFs is a “bad deal for society,” say the authors. According to the most recent annual statistics from the IRS (2012), the overall DAF payout rate is only 7.2 percent—and 22 percent of sponsoring organizations distributed nothing at all. (Although commercial DAF sponsors like to tout a high payout rate, they do not generally use the same method as IRS statisticians.) Madoff and Cullman call on Congress to require that donor-advised funds be distributed within a reasonable amount of time, instead of being allowed to be held for a “someday” future date.
Madoff founded and directs the Forum on Philanthropy at Boston College Law School, a time-limited think tank devoted to considering whether our current rules governing the charitable sector are adequately serving the public good. She was named “Philanthropy Critic of the Year” by website Inside Philanthropy in January 2016, and is a frequent critic of tax rules that benefit donors and sponsors, but not charities.
Cullman has given away more than 90 percent of his fortune—$500 million over the past two decades—and has been a vocal critic of private foundations and DAFs.
Written with materials provided by Michael Shepley.