Philanthropy 2020 will have a different look, but to see how, we have to look at previous and ongoing events. In 2018, donor-advised-funds continued to sparkle although a lawsuit looms. Meantime, foundations had only a so-so year in terms of performance and grantmaking.
Other studies found how the outcome of presidential elections influence charitable donations, as well as looked at how women’s funds provide a unique model of philanthropy.
Donor-advised funds in the United States continued their winning ways of recent years, according to a National Philanthropic Trust report released in November.
Grants from DAFs in fiscal 2018 soared to a record $23.4 billion, up 19% from the previous year, and DAF assets available for grantmaking increased by 8% to $121.4 billion.
For the first time in four years, contributions to DAF accounts outpaced grants: $37 billion, up 20% from the 2017 fiscal year. The report suggested this was the result of donors choosing to “bunch” their giving, prefunding several years of giving to make their philanthropy more tax effective.
Awareness of DAFs is growing in the United Kingdom where contributions increased for the sixth year in a row, according to an NPT report. Contributions to U.K.-based DAFs hit a record high of $683 million, up 9% from 2017. Charitable assets in all DAF accounts amounted to some $2 billion, up 18%. Grants from DAF accounts fell by 2% to $408 million.
In December, The Chronicle of Philanthropy reported that the top 10 sponsors of DAFs took in a combined $21.5 billion in 2018, a year-on-year increase of 24.7%. For perspective, The Chronicle said that the top 10 nonprofit organizations on its list of America’s favorite charities brought in $18 billion in 2018.
It noted that to surpass the contributions to the 10 largest commercial DAFs, one would have to total up the private donations to the 18 top-ranked cause-oriented nonprofits; these brought in a total of $22 billion in cash and non-cash support in 2018.
They argue, according to The Chronicle, that DAFs have become huge depositories where a lot of money sits idle and generates fees for account managers. DAFs, Madoff and Cantor say, represent an increasingly big part of donor dollars without benefiting traditional nonprofits.
“Donors can bunch their donations without any obligation of getting the money out the door, ever,” Cantor told the publication.
Fidelity Charitable sits astride the DAF universe, but a lawsuit filed in 2017 and spotlighted by The New York Times in June, threatens at the least to damage its reputation.
Malcolm and Emily Fairbairn, owners of San Francisco-based Ascend Capital, filed suit in federal district court in Northern California, accusing Fidelity Charitable of mishandling a contribution to their DAF account of $100 million in cash and other assets, which they intended to be granted to nonprofits that combat Lyme disease.
Their donation represented about 10% of their ownership of a publicly traded company called Energous, a wireless charging technology venture, in which they were angel investors. After the company’s value soared by 39% in December 2017, Fidelity Charitable sold off the stock within three days.
It did this, the Fairbairns charge, without their authorization and with unsophisticated trading strategies that caused the stock’s value to plunge 30%. As a result, they had less money to give to charity and had to pay more in taxes.
The lawsuit says that Fidelity had assured them that it would liquidate shares gradually and would use state-of-the-art means to do so. Fidelity had also agreed on price limits to ensure that the stock retained its value, the lawsuit said.
For its part, Fidelity Charitable denies that it made such agreements. It says the Fairbairns were aware of its standard policy that it can sell securities as soon as they are received. A judge denied the firm’s motion to dismiss the case at the end of last year.
The case seems to turn on the question of a DAF sponsor’s responsibility to its account holders. DAFs have control over donations they receive, by federal law. But they also are required to be conscientious stewards of the money.
Wealthy donors continue to donate complex assets to DAFs, and the big sponsors tout their capabilities in handling these assets — Fidelity has four lawyers on staff to handle donations of such things as appreciated stock, property and business assets, according to The Chronicle.
A decision against Fidelity Charitable could give megadonors pause when considering what to donate to their DAFs. It could also set the stage for further lawsuits against big DAF sponsors by rich donors who expect their preferences to be respected.
On another front, The Chronicle reported in December that Schwab Charitable and Fidelity Charitable had banned new contributions by their DAF account holders to nonprofit organizations affiliated with the National Rifle Association. Both cited reports that the Internal Revenue Service was investigating the gun rights group’s network of nonprofits.
The Chronicle quoted from a statement released by Schwab: “Like many other donor-advised funds, Schwab Charitable follows IRS guidance and suspends grants to 501(c)(3) organizations that are under investigation, until the investigation concludes and the organization retains its 501(c)(3) status.”