There is a rising debate over “donor-advised funds,” the fastest growing category in charity.
Donor-advised funds are a way to put aside money now for charity, and claim the tax deduction now, but have the freedom to actually donate the money whenever the donor wants. They’ve been around for a long time, but their sharp rise came after the asset management firm Fidelity set up a philanthropic fund, Fidelity Charitable, to manage them.
Fidelity Charitable is the industry leader — it is now the second biggest charity in the country and catching up fast to number one, United Way — and other investment firms, including Goldman Sachs, Vanguard, and Charles Schwab also manage donor-advised funds.
Critics say charitable trusts give donors a way to just park their money and take the tax break — without any time frame for when they would actually donate the money.
Boston College Law professor Ray Madoff told the Boston Globe that that if the funds did not exist, “there is every reason to think that that money would be going directly to working charities.”
Madoff wants Congress to pass a law requiring donors to disburse funds in 7 years.
But supporters of donor advised funds point out that all the money being held in these funds is required to go to charity by law. They say it doesn’t matter when that happens, and argue that these funds may be attracting money that might not otherwise be donated.
The National Philanthropic Trust reports that American donor-advised funds handed out about 16% of their total holdings in 2012, which, Fidelity notes, is much higher than the 5% that most foundations pay out per year.
Critics say that may be true for the funds in aggregate, but we know nothing about individual funds — they want more transparency in donor advised funds.