CalNonprofits Articles

Donor-advised funds (DAFs) are a topic of keen interest to nonprofits. When CalNonprofits conducted a survey recently, 424 nonprofits were quick to respond — discussing their own experiences with DAFs as well as their views on possible DAF regulations. And we are pleased to announce a new bill on DAFs - AB 1712 - co-sponsored by CalNonprofits, NextGen California, and philanthropist Kat Taylor. 

AB 1712 is authored by Assemblymember Buffy Wicks: “I introduced AB 1712 because we must ensure that tax incentives meant to encourage charitable contributions are being used as they were intended: to directly benefit the people and causes of service providers. They should not be used as a vehicle to benefit a few wealthy individuals, while depriving the general public of the benefits that result from direct gifts to charitable service providers,” she said.

“I want to bring stakeholders together so we can explore options to increase transparency. Let’s move to bring more sunlight to DAFs and unlock these much-needed funds by passing AB 1712."

Enormous changes in the field of donor-advised funds have reshaped the field far beyond how nonprofits have long understood it.

For many nonprofits, DAFs are most closely associated with community foundations. And in fact, in 2016 (most recently available data), there are 195 community foundations based in California holding $14.44 billion in assets. But the commercially affiliated funds such as Fidelity and Vanguard have far surpassed the community foundations in recent years, and Fidelity Charitable now has more assets than any other nonprofit in the U.S. Here in California, just one such fund — Schwab Charitable Fund — holds more than $8 billion in assets. Click here to learn more about donor-advised funds.

With this legislation we are highlighting two important public policy aspects of donor-advised funds:

First, there is no time requirement for any funds to be distributed out of the DAF to nonprofits. Donors receive an immediate tax deduction for donations into DAFs — an expense to the public — but the funds can be used for public benefit (given to nonprofits) anytime whether the subsequent week or in 100 (or more) years.

Second, DAF sponsors (whether a commercially affiliated fund or a community foundation) can make anonymous gifts to nonprofits without reporting any activity for individual funds. An unintended consequence of these aspects has made DAFs attractive vehicles for dark money, where huge gifts to 501c4s — including partisan political organizations — can be made without being traceable to the donor.

California nonprofits are familiar with donor-advised funds, with more than 70% of survey respondents saying they had received a donation within the last year from either a commercial fund or a community foundation. And, they are highly interested in seeing changes in several DAF areas:

Kat Taylor, impact investor and DAF holder, strongly endorsed AB 1712, saying, "As owners of donor-advised funds ourselves, we adhere to best practices to ensure the funds get out into the community. We are also committed to working with Assemblymember Wicks, our nonprofit allies, and other stakeholders to explore better reporting and transparency options.

And CalNonprofits CEO Jan Masaoka adds, "DAFs have an important role to play for donors and for nonprofits. It’s time for regulation to start catching up with the rapid, technology-driven changes in DAFs."

We’ll be updating you as the DAF bill evolves and moves through the California legislature. If you are not already receiving our eAlerts, click here to subscribe. And we welcome your perspectives, comments, and questions on the DAF bill below. 

Comments   

+3 # ruth mccambridge 2019-03-18 19:00
Thank you for taking a position on this issue. Our experience is that there has been a polarization going on that drowns out the will for a change on this front. Planting your flag brings us one step closer to a resolution that is reasonable...an d badly needed.
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+2 # Daniel Baldwin 2019-03-18 13:52
I'm disappointed your article only focused on your perceived negatives around DAFs. Since you're purportedly representing all nonprofits in California, that would include your community foundation members (of which we are one). DAFs may not be perfect vehicles, but all data suggests that payout rates from non-endowed DAFs is probably three times greater than private foundations. You mention the cumulative levels of assets held in DAFs, but failed to mention the billions each year that are granted. How about a little balance in your outlook and what you're communicating to your members and policymakers. Vilifying a highly productive philanthropic instrument may not serve California nonprofits in the long term.
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+1 # Jan Masaoka 2019-03-18 14:00
Hi, Dan. As you know, we've been in a lot of contact with community foundations, including with you. One of the bill's co-sponsors -- Kat Taylor -- met last week with the presidents of seven community foundations -- I understand you invited but were unable to attend that meeting.

We are not against donor-advised funds. In fact, we think they are an important tool in the philanthropic toolkit and should remain distinct from private foundations.

We think nonprofits are good, too, but we also think that appropriate regulation of nonprofits is needed as well. Thank you for weighing in!
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0 # Daniel Baldwin 2019-03-18 14:44
Jan,

Thanks for your response. I was in fact one of the seven in attendance with Kat Taylor. Your reference to time requirements can easily be interpreted as wanting payout mandates. My point is that if you don't publish both sides of the equation (what is currently being granted from DAFs), policy decisions can be made without complete information and have unintended consequences.
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+1 # Sam Stone 2019-03-18 13:34
Kudos to your team for digging up some key data points, including how California donors hold $8 billion in Schwab Charitable Fund. Could you please share your source? And imagine Fidelity, Vanguard and Schwab combined across the state!
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0 # Jan Masaoka 2019-03-18 13:47
Hi, Sam, and thank you for your email! Of the "Big Three DAFs" only Schwab Charitable is a California nonprofit. The info came from their 990.

Of course there are people who live IN California who have DAFs in Fidelity and Vanguare, which are not officially headquartered in California. And there are people outside of California who have DAFs in Schwab. It's not possible to know the residences of the various DAF holders.
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+3 # Jacob Peterson 2019-03-18 13:05
We whole-heartedly stand with you here at United Way of Northern California- please let us know if there is anything we can do to help support this!
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