What sparked Arnold’s interest, he said, was seeing rich people with philanthropic intent funneling money into DAFs yet distributing very little of it to charities.
“The money was just sitting there growing,” Arnold said. “There wasn’t any intent of abuse of the system. But the money was just building up because there was no forcing mechanism.”
Opponents of the bill counter that tighter restrictions on DAFs are unnecessary because the average annual payout rates for DAFs hover around 20% — much higher than the 5% minimum required of private foundations. Richard Graber, who leads the conservative Bradley Foundation, calls the legislation “a solution in search of a problem.” (The foundation is affiliated with Bradley Impact Fund, a DAF sponsor).
Yet without payout requirements, supporters of the legislation say DAFs — which hold an estimated $142 billion in the United States — have essentially become warehouses for charitable donations. The accounts let donors set up endowed accounts that exist in perpetuity and can pass on to their heirs.
A June report by the Council of Michigan Foundations showed that 35% of DAFs sponsored by Michigan community foundations distributed no money in 2020, a year marked by enormous need because of the viral pandemic.
Today, roughly 1 in 8 charitable dollars are estimated to go into DAFs. The New York Community Trust, a community foundation, established the first DAF in 1931. Their use accelerated in the 1990s, when Fidelity Charitable launched a national donor-advised fund program. Charitable arms of many financial firms, including Vanguard Charitable and Schwab Charitable, now run robust DAF programs.