Don't Expand DAFs Without a Payout Requirement!
At a time when charitable giving doesn't look like a priority topic in Washington, there is nonetheless a bill in Congress that would expand giving to donor-advised funds (DAFs), possibly displacing giving that would otherwise go directly to nonprofits.
Foundations and donor-advised fund sponsors are supporting the bill. It is high time for the nonprofit wing of the nonprofit sector to speak up to prevent a further diversion of charitable funds to the financial services industry.
So what is the bill?
Representatives Adrian Smith (R-NE) and Jimmy Panetta (D-CA) introduced the IRA Charitable Rollover Facilitation and Enhancement Act HR 2891 and it now sits in the House Ways and Means Committee and the Senate Finance Committee – both important gatekeepers. So far 40 members of Congress have signed on.
Individuals aged 70.5 and older can choose to assign some of their Required Minimum Distribution (RMD) from their IRA to a charitable organization, rather than receiving it as taxable income. Notably, the law currently does not allow either private foundations or donor-advised funds to be considered qualified for such distributions (Qualified Charitable Distributions) The bill removes DAFs from the exclusion, and some people will choose to rollover their RMDs into DAFs rather than into operating nonprofits.
Congress has not issued an official cost estimate, but we estimate the tax expenditure (cost in taxes lost) to be $5 billion - $15 billion over the next ten years.
Taking sides
Expectedly, institutional philanthropy has come out in support through the Council on Foundations, the National Philanthropic Trust, United Philanthropy Forum, and Philanthropy California. Supporters of the bill see it as offering yet another vehicle to prospective donors . . . and why not?
Our concern is that giving to DAFs is giving to a holding pen, not to a nonprofit acting in its community and participating in the economy. QCDs are an efficient and direct pipeline of water from individual donors to nonprofits. This bill in effect enables the creation of storage reservoirs between the donor and the useful public benefit—a subsidized reservoir that is likely to get fuller and fuller while less and less gets to address current public needs.
The real danger
It's unlikely that this bill would get through Congress as a stand-alone. The more likely danger is that it would be folded into the next Big Tax Bill, thereby giving philanthropy and the wealthiest in our society a "charitable" reason to support what is likely to be a harmful bill at a time when the American middle and lower classes are already seeing a shrinking future.
Nonprofits such as the Independent Sector, the National Council of Nonprofits, the United Way and others have long positioned themselves as policy leaders for nonprofits. We encourage them to speak up for requiring charitable funds to actively benefit the public, not the financial services industry. This is the perfect time to advocate for this provision, but ONLY if it includes a payout requirement such as 15% per year, per account.
And in case you are looking for a slogan, how about this one: "Don't Expand DAFs Without Payout Requirements!"
See also:
The Philanthropy Project is Not Anti-DAF, and Here's Why
Who is Blocking Philanthropic Reform?
Strange Traffic: $4 Billion Shuffles Between DAF Sponsors Each Year?
Strange Traffic: $4 Billion Shuffles Between DAF Sponsors Each Year?
BY JON PRATT
For community-oriented individuals with DAFs (donor-advised funds), it can make sense to move, say, your DAF from one sponsor to another. For example, you may have a $30,000 DAF at a community foundation but you are moving to another city and want to move it to the community foundation there.
But what about transfers between DAF sponsors of more than $10 million each? In 2023, only counting these large transfers, a total of $4 Billion moved among DAF industry leaders Wall Street firms Fidelity, Morgan Stanlen, Schwab, and other firms. These transfers:
- Were reported as charitable grants (“payout”)
- Did not go to any operating nonprofit
- Produced no charitable benefit – simply moved to a different financial institution
- Provided no tax advantage to the individual DAF account holder, and
- Have no apparent explanation.
Here are just four eye-widening examples of multi-institutional transfers revealed by IRS Forms 990 in 2023:
- National Philanthropic Trust (NPT) transferred $63 million to Fidelity Investments Charitable, and Fidelity transferred $194 million to NPT
- Schwab Charitable Fund (recently rebranded as DAF Giving 360) sent $120 million to Investments Charitable Gift Fund, and Fidelity sent $183 million to Schwab
- Fidelity sent $57 million to American Endowment Foundation (AEF), and AEF sent $48 million to Fidelity
- Morgan Stanley Global Impact Funding Trust sent $149 million to Fidelity, and Morgan Stanley sent $13 million to Fidelity
Charting the money flow between 42 of the largest DAF sponsors creates a massive money circle — Visualization by the Vermont Complex Systems Institute using data from the Institute for Policy Studies.
Clearly, DAF sponsorship is big business, especially for commercial investment houses that have created these tax-exempt charitable entities eligible to hold DAFs on behalf of their clients.
An obvious question is to what purpose is so much money around? The most frequently heard rationale is that people move accounts based on their wealth/financial advisor:
- They move to a different wealth advisor and move their DAF assets as well to the new advisor’s firm
- Their wealth advisor changes firms, so they move their DAF (which technically they no longer own, but merely advise) from one DAF sponsor to another to keep their relationship with their wealth advisor
- They move their DAF to have one provider manage both their personal investments and their donor-advised funds in one place
- Wealth advisors appreciate being credited (and compensated) for the combined private and charitable assets under management
Maybe there is something more to this strange traffic than shifting customer loyalties, but if so, what is it?
Regardless, the main problem here is the wasted resource of “trapped value,” a valuable public trust sitting dormant. The billions of dollars held in these accounts, for which many received a tax deduction long ago, can be seen simultaneously as proof of these donors’ generosity and charitable ineffectiveness. Essentially, wealthy people treat these tax-exempt funds under their nominal “advising” as another piece of their portfolio, private property to be preserved, enhanced, and handed down to heirs.
Underlying these arrangements are a couple of lawyerly fictions that 1) DAF sponsors exercise complete control over these accounts, and “advisors” none, and 2) moving tens of millions of dollars from one account with a DAF sponsor to an account with a different DAF sponsor is a “grant” furthering a charitable purpose, not a transfer of assets.
So, what is actually going on here? The answer to this question needs to come from the state attorneys general, who should investigate, since they have the responsibility to protect charitable assets, and are to be notified of substantial transfers of assets from public charities. Are these payments actual charitable grants that further a charitable purpose, or special accommodations of private investment client accounts for other reasons? AGs should require DAF sponsors to explain the legitimate purpose of these transfers, and report it to the public.
In the meantime, why not put that $4 billion inactive DAF capital to work helping people this year?
See also:
Is the Tide Turning Against Billionaires and Their Unreasonable Power?
BY JAN MASAOKA
For a while, billionaires felt like our real-life superheroes — Batman and Iron Man with tech companies and PR agents.
In the comics, it tracks: Bruce Wayne (Batman's secret identity) and Tony Stark (Iron Man's) are both billionaires, complete with vast inheritances and high-tech toys, and they keep saving the world.
Back in the real world, figures like Bill Gates, Elon Musk, Mark Zuckerberg, and Donald Trump were often treated the same way: admired, celebrated, and held up as ideals for ambition and success. (Trump’s fortune was inherited; Gates, Musk, and Zuckerberg built theirs—though not without aggressive, and sometimes illegal or questionable corporate strategies.)
In 2001, Occupy Wall Street caught public attention with the phrase, “the 99% versus the 1%.” And over the following decade, "millionaire" stopped sounding outrageously rich. Even the reality show Who Wants to Marry a Millionaire? didn't seem to be offering enough money.
In fact, we have been seeing a gradual shift in the popular idea of extreme wealth—To be really rich, now you had to be a billionaire. And for the first time, there were enough billionaires to talk about them as a group.
Now we appear to be in the middle of a wider cultural—and possibly political—shift in how billionaires are viewed. Cultural shifts don't easily lend themselves to precise measurement, but several indicators are visible:
- The growing use of the term “billionaire class.” This isn’t about colorful individuals anymore; it frames billionaires as a group with shared economic interests.
- “Tax the Rich” has increasingly become “Tax the Billionaires.” The target has narrowed—and sharpened.
- Federal policy vocabulary: Just last year, the Biden administration proposed a Billionaire Minimum Tax—a 25% tax aimed at the wealthiest one-thousandth of one percent (0.001%).
- State policy vocabulary: In California, unions and advocates are gathering signatures for a proposed Billionaire’s Tax—a one-time 5% tax on the wealth (not the income) of roughly 200 California residents who have net worths of $1 billion or more.
- Pop culture: It’s risky to read too much into movies and TV, but it’s notable that the past two years have delivered a wave of billionaire villains—from Succession to Glass Onion: Knives Out, Jurassic World: Rebirth, and Alien: Earth. The billionaire-as-hero motif is increasingly supplanted by the billionaire supervillain.
A small number of billionaires themselves have acknowledged the distortions created by extreme wealth. Warren Buffett put it bluntly: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
And let's not forget how hard it is to even picture a billion. Stack $1 bills and one million dollars reaches about 358 feet (31 stories). One billion dollars? About 68 miles high. That's sixty miles higher than where commercial airplanes fly!
So there is some good news. More people are recognizing that billionaires don’t just act solely as individuals—they often act in the interests of a billionaire class, with consequences for everyone else: for inequality, for democratic institutions, and for the planet itself.
Cultural and political moods can swing quickly, and not always in the same direction. For now, though, this shift is worth noticing and offering a ray of optimism. There's a problem with so few people having so much money and thereby control and influence. We should remember that billionaires exercise their power through multiple vehicles, including philanthropic entities. And they typically exercise this power to strengthen the financial and political interests of the billionaire class. Let's appreciate this small cultural shift and seek ways to build on it.
A Bipartisan Plan to Increase Foundation Payout Rate
A Bipartisan Plan to Increase Foundation Payout Rate
BY CRAIG KENNEDY
For many years, the centerpiece of philanthropic reform was increasing the "payout" rate from its current 5% of foundation assets. Reform efforts have shifted to more focus on what expenses can be counted as payout (see When does 5% not equal 5%?), and the stockpiling of philanthropic assets in donor-advised funds. When the former head of the Joyce Foundation and the German Marshall Fund (and one of the savviest guys we know) speaks on this topic, we listen.
Thank you to the Giving Review and Craig Kennedy for permission to reprint his article. (See a few additional notes at the end.)
Private foundations are making a lot of money. The assets of U.S. philanthropies currently stand at nearly $1.7 trillion—up 15 percent from 2023. Despite a substantial dip during the pandemic, grant makers’ average investment return from 2013 to 2023 was 7.1 percent, according to a new study by CommonFund and the Council on Foundations.
Many of the largest foundations are faring even better. The 990 tax data for 18 foundations with more than $2 billion in assets shows that almost all increased their inflation-adjusted assets during that same period. (See table of private foundations below.)
Given this bounty, I believe it’s time to stop simply talking about raising the foundation payout rate and start taking steps to actually do it. I propose increasing the rate from 5 percent to 6 or 7 percent — a modest change that would significantly expand giving to the nonprofit sector at a time when government dollars are being slashed.
Some foundations, including MacArthur, McKnight, Hewlett, Freedom Together, and others, have voluntarily upped their giving. But most have not. That’s why Congress should pass a law requiring them to do so.
Advocates on the left have long demanded a payout increase as well as other reforms, such as excluding foundation salaries and expenses from the payout calculation and mandating distribution requirements for donor-advised funds.
Opponents of a larger mandatory payout argue that the 5 percent rate allows foundations to do good while maintaining the inflation-adjusted value of their endowments for as long as they continue to operate. In truth, despite overall gains for the sector, the 990 tax data shows that over the past decade some foundations have struggled to maintain the real value of their assets after inflation, including the Knight, Ford, Mellon, and Packard foundations. Others have seen minimal growth in earnings. Kellogg even saw an earnings decline between 2013 and 2023 because its primary asset is stock in the struggling Kellogg company. (The Ford Foundation is a financial supporter of the Chronicle of Philanthropy.)
But this mixed result isn’t a reason to continue supporting a 5 percent payout rate. Instead, as critics of foundation asset management have noted, they should do a better job of investing.
Misplaced priorities
The priority of public policy shouldn’t be to ensure the perpetuity of foundations, but to increase giving. That goal can be accomplished by both raising the distribution requirement by a modest 1 or 2 percent and capping how much foundation program expenses can be applied to that payout. In 2024, foundations gave away about $109 billion. Given that most funders stick close to the minimum 5 percent payout rate, upping the rate to 6 percent could increase giving by almost $11 billion, enough to hire 181,000 employees based on a 2022 average salary of $68,394 for nonprofit employees. A 7 percent requirement could generate more than 360,000 new jobs.
The philanthropic trade associations generally oppose any changes to the status quo and will almost certainly come out in force against this idea. To support their argument, they will likely point out that recent efforts in Congress to increase taxes on private foundations failed because politicians understand that these institutions provide significant benefits to the public.
In reality, for many conservatives the goal of the proposed tax increase was to punish foundations that fund progressive causes. Support for anti-Israel groups on college campuses and the use of tax-exempt money for election-adjacent activities and lobbying for issues favored by the left made some Republicans question the value of foundations.
The bill’s sponsors, however, failed to take into account the number of philanthropies in red states that provide valued services to local residents and would have been harmed by the legislation. By contrast, a proposal to increase the amount of money those donors give to mainstream causes could have real political appeal if combined with some restrictions on how foundation money is used.
Requiring foundations to give away more would not be opposed by conservatives if that money flowed to food banks, childcare, disaster relief, and other less controversial projects. This is exactly the work the Council on Foundations cited as at risk during the debate on the foundation excise tax increase.
A common-ground approach
The left and right need to find common ground. That’s possible, but only if progressives are willing to accept a definition of charitable giving that does not include politically charged activities.
More than 50 years ago, a similar constellation of liberals who wanted foundations to give more money and conservatives who sought to curb the partisan activities of the Ford Foundation and other liberal donors produced the Tax Reform Act of 1969. It has served since then as the basic framework for the charitable sector.
It shouldn’t be too difficult to develop an acceptable plan for raising the required distribution rate and limiting the application of foundation expenses to meeting that requirement. There would also likely be broad agreement on addressing the abuses of donor-advised funds by mandating a giving requirement.
The tricky part is coming up with rules that would limit the ability of foundations to fund political and lobbying activities of nonprofits. A complicating factor is the Trump administration’s tacit support of challenges to the Johnson Amendment, which prohibits nonprofits from endorsing candidates. In June, the Internal Revenue Service said it would not enforce a legal settlement that prohibited churches from engaging in such activities.
Despite this challenge, smart lawyers and legislators should be able to find ways for drawing a sharper line between politics and charity. The promise of a substantial increase in giving from foundations and possibly DAFs, combined with stronger constraints on election-adjacent and lobbying activities, should motivate Congress and advocates from the left and right to find solutions that will last another 50 years.
If this prospect comes to fruition, it will also be a test for groups that have undertaken political activities with charitable money. There will no doubt be consternation and protests over the unwillingness of conservatives to simply up the flow of dollars without restriction. I hope that the value of a healthier and wealthier nonprofit sector overrides these potential partisan concerns.
Note from the Philanthropy Project
In a separate short Giving Review article, Craig predicted that in 2026, "Bipartisan voices will demand payout policy reform." He foresees a deal: liberal foundations agree to a higher payout rate in exchange for conservative foundations agreeing to stricter regulations keeping foundations and nonprofits out of "election-adjacent" activities. "Voices on the right and left want change. A few smart senators, such as Republican Charles Grassley of Iowa and Democrat Elizabeth Warren of Massachusetts, who have both criticized foundations for not spending enough, could make the difference if they are willing to reach across political lines and work to pass a policy that will benefit the charitable community."
We worry that there is no table where anyone is even proposing deals. Craig: how can we make this happen?
Craig Kennedy is a Fellow at the Giving Review, to which he brings his impressive and varied background in philanthropy and public policy. He was president of the German Marshall Fund and of the Joyce Foundation (where he started as a program officer), and he has advised many U.S. and international governments as a consultant and policy advisor.
DAFs: A Grantwriter Speaks Her Mind
We are always pleased to bring on-the-ground voices to the philanthropic reform discussion. Lindsay Jordan and her Oklahoma fundraising firm have raised nearly $300MM for nonprofits since 2018, and she previously served as Development Director for three direct service nonprofits. Based on a great variety of experience, here are some thoughts from her about donor-advised funds (DAFs).
If I see one more webinar on "how to win funding from DAFs,” I might actually puke. Do you want to know how to win more funding from DAFs? I’ll save you an hour-long Zoom call: Stop treating DAFs (donor-advised funds) like some mystical new revenue stream and start understanding them for what they are: separate financial accounts advised by charitable donors.
Donors who use DAFs are often the same people who give through other nontraditional means- stock transfers, cryptocurrency, anything but cash. So when nonprofits start freaking out about “not having a DAF strategy,” my first question is: do you have a separate strategy for stock gifts, personal checks, or EFT? For crypto? Probably not. And that’s fine, because we tend to recognize those gifts as simply another currency option for wealthy donors. DAFs are little different.
The reason we keep fantasizing about DAFs - the endless webinars, articles, seminars, blog posts, and podcast episodes - is because we don’t actually understand them. We don’t understand how DAFs fit into the philanthropic ecosystem.
That’s because, for general operating purposes, they don’t. Let me explain.
I run a fundraising firm. We raise money for nonprofits. So when my clients started expressing frustration about not being able to “win grants from DAFs,” my team started looking into it. Here’s what we found:
- Donors move money into DAFs to get an immediate tax benefit. They’re often told that it's a great way to get a tax benefit and put off deciding where to give. The fact that charitable need is met only when the money moves from DAF to nonprofit rather than from donor to DAF is left unsaid.
- DAFs are primarily housed at financial institutions and community foundations. And despite their public image, one isn’t necessarily more benevolent than the other (especially considering that community foundations were originally created to help wealthy Americans avoid federal income tax, not to exclusively benefit communities).
- Both types of institutions are actually disincentivized to move money out of DAFs. Why? Because they collect management fees while the money sits. These fees are often downplayed as a “minuscule” 1–2%. However, with DAF assets currently sitting at $250 billion, that “tiny” percentage translates to $2.5–$5 billion in fee income annually - dollars that could have gone to benefit local communities, but instead line the pockets of community foundations and financial institutions. Last year, only 24% of DAF assets were actually distributed to nonprofits.
- Most DAFs aren’t set up with an intentional giving strategy. While most donors intend for their gifts to support general operating or programmatic needs, those tax-deducted dollars end up held hostage by wealth-hoarding middlemen who abide by no regulation or code on the timely distribution of DAF funds.
- Lastly, and perhaps most importantly, the identities of DAF holders and their gifts are largely hidden. Community foundations and financial institutions are not held to the same annual reporting requirements as private foundations, which means they don’t have to specifically disclose to the federal government or the public how money moves in and out of each account, where it goes – just an aggregate list of all DAF transfers.This loophole to evade reporting and payout requirements creates opportunities for abuse. Bad actors can use tax-deductible gifts to keep money away from nonprofits. For example, a private foundation that’s at risk of falling short of its 5% annual payout requirement can simply transfer funds into a DAF. On paper, this satisfies its payout legal obligation, but in reality, not a single dollar reaches an actual nonprofit or delivers a public benefit, which is the rationale for their tax exempt status.
Donor makes $100K gift to nonprofit =
Nonprofit delivers $100K impact in community + develops relationship with donor
Donor makes $100K gift to DAF =
Nonprofit receives $24K, DAF makes $1-2K in fees, donor identity kept secret
In short, DAFs strangle the delivery of valuable services to communities so that community foundations and financial institutions can maintain account balances and keep collecting management fees.
So, what exactly am I trying to say here? That DAFs are evil and nonprofits shouldn’t be trying to get their piece of a $250B pie? No. DAFs are here to stay and represent a halfway step to generosity. However, the $250B given by donors is no longer theirs: it is a public trust held by DAF sponsoring organizations – mostly community foundations and the financial services industry. There is no putting that toothpaste back in the tube. However, nonprofits should not be wilting violets here either.
This is the exact position the nonprofit sector finds itself in when determining how to deal with DAFs: Yes, you can play nice in the sandbox for pennies on the dollar with community foundation and financial institution representatives, as countless webinars will instruct you to do. You can add a button to your website to remind donors that they have a DAF and that you are willing and able to accept those gifts. You will raise some money… and you will also perpetuate a toxic giving trend that has positioned Fidelity Charitable, the National Philanthropic Trust, and Schwab Charitable as the largest recipients of charitable donations in the U.S. (as recently as 2022, the top three were Feeding America, United Way, and St. Jude Children’s Research Hospital).
My proposals for how we fundraisers deal with DAFs:
- De-center DAFs in our solicitations. Enough of the glitz and glam about DAFs. Yes, it’s the largest growing area of philanthropy - but that’s not a good thing for nonprofits. The more airtime and recognition we as a sector bestow on DAFs, the more they will continue to feel like a special little something. Remember, DAFs are just another giving tool – like a checking account is a tool – and you already have a toolbox FULL of these tools.
- Educate Donors and Ask Them to Follow Through. Donors don’t give to DAFs in order to decrease their impact by 76%. There was no community advocate in the room when they were making their financial plans. In short, they don’t know the collective catastrophic impact that the current structure of DAFs inflict on our sector.Elevate educational giving opportunities like Half-My-DAF, an annual campaign that encourages donors to tap into matching gifts by pledging to put half of their DAF balance into productive use. Or launch your own “Drain the DAF” annual campaign. Remind donors through these campaigns that those dollars were already committed to the community, and it’s their job (not the community foundation’s or financial institution’s) to make sure the promise is kept.
- Keep raising money from big and small individual donors. THey can give to you in cash, by credit card, by writing a check, by donating stock or crypto, by supporting your event, by using their Qualified Charitable Distribution from their IRA, and yes, from their donor-advised fund. When they want to give, they will choose the vehicle that works best for them.
As charitable giving continues to skew in America to a smaller and smaller group of wealthy individuals, we cannot allow critical dollars to be hoarded by community foundations and financial institutions like dragons on a veritable pile of gold.
Fundraisers - traditionally expected to “friendraise” - now find themselves in the crosshairs between a donor’s good intentions and the profits of major financial institutions, with the mission of their nonprofit at risk. It’s an unfair fight. And it continues the harmful framing of donors as saviors instead of community partners.
We fundraisers must first adjust how we interact with DAFs, understand their place in the world, and respond in ways that realign generosity with the communities it was meant to serve.
Lindsay Jordan is founder and owner of Write On Fundraising, a 15-staffperson firm based in Tulsa Oklahoma that writes grant proposals, conducts capital campaigns, and other fundraising consulting work. She has served as Director of Development in three direct service nonprofits, and in 2021 was named 2021 Oklahoma Small Business Champion of the Year by the U.S. Small Business Administration.
You can read more from the Philanthropy Project at www.philanthropyproject.net, and you can subscribe here.
Philanthropy Project Awarded!
Exciting news: The Philanthropy Project has just received the Pablo Eisenberg Memorial Prize from the National Committee for Responsive Philanthropy (NCRP).
We could not be more honored. Pablo Eisenberg has been called "a folk hero for grassroots nonprofits" who frequently criticized foundations as "gutless wonders" and called out mega-donors for funding the wrong things and/ not funding enough," NCRP said:
“Jan [Masaoka] and Jon [Pratt] have for decades been truth-tellers and thoughtful critics of philanthropy. Their latest joint effort, The Philanthropy Project, seeks to focus attention on the need for appropriate regulation and public accountability for tax-favored philanthropic wealth. Pablo appreciated their work, and I know he would be incredibly pleased that they are receiving this award that bears his name.”
We know the effort for regulatory philanthropic and tax reform is a long one. This recognition when the Philanthropy Project is only a year old means so much to us. It's also a fun honor to follow Prize recipient Vu Le, the sharp-eyed and sharp-tongued writer of Nonprofit AF. And a quote from Pablo Eisenberg that Jon cited when we accepted the award in Minneapolis:
"What sense does it make to sit on billions in endowments while communities are starving for help? The moral case for increasing payouts is overwhelming."
And NCRP: we are glad to be allies with you in the fight for reform.
“A Flag in the Wilderness”: Inside the Philanthropy Project’s Push for Reform
“A Flag in the Wilderness”: Inside the Philanthropy Project’s Push for Reform
The Philanthropy Project is creating space for nonprofit practitioners to speak out for reform
By Grace Chai
Thank you to Proximate Press – noted for their strong journalism about philanthropy – for this interview with one of our co-chairs, Jan Masaoka. Reprinted with permission.
Over the past decade, philanthropy reform has been a conversation led by academics and policy experts, and industry insiders. The Philanthropy Project, launched in December 2024 by longtime nonprofit leaders Jan Masaoka and Jon Pratt, was created to change the conversation – and who gets to participate in it.
Jan Masaoka, former CEO of the California Association of Nonprofits, co-founded the initiative with the goal of making space for nonprofit practitioners – not just policy experts – to voice frustrations and engage more directly in shaping the future of charitable giving. With a fast-growing subscriber base and an open call for contributions from the field, the Philanthropy Project has already struck a nerve.
In this Q&A, Masaoka shares the response the Philanthropy Project has garnered in its first six months. She also offers a frank assessment of how the political moment is impacting nonprofit workers’ willingness to speak publicly on reforming the system upon which their livelihoods depend.
Grace Chai: What inspired the Philanthropy Project, and what role do you hope to play in the philanthropy landscape?
Jan Masaoka: My co-chair, Jon Pratt, and I have long histories in nonprofit advocacy: I was the CEO of CalNonprofits for 12 years, John recently retired as the CEO of the Minnesota Council of Nonprofits after more than over 30 years.
Reforming philanthropy, especially donor advised funds (DAFs) was one of the most important issues for our members and also evoked a lot of emotions. Few issues made our members feel as anguished and angry.
Typically, dialogue around philanthropy reform has been held in avenues or language that aren’t very accessible to or engaged with nonprofit professionals, like development directors and executive directors. We didn’t want people to have to navigate academic language or be inundated with emails to participate in the conversation.
The Philanthropy Project is our way of waving a small flag in the wilderness to show the world that the nonprofit sector isn’t a monolithic united front supporting big philanthropy.
Grace Chai: How did your Working Group come together?
Jan Masaoka: We noticed the places we get information on this topic are few and not always accessible. For example, not everybody reads the Nonprofit Law Professor's Blog!
We didn’t want people to have to read a book or receive an overwhelming amount of emails for people to participate in the conversation. The Working Group has become a space of early-stage collaboration—people sharing what they’re working on, connecting dots, brainstorming. And I think that's the best we could ever hope for.
Grace Chai: How’s the response been in the first six months? Has anything surprised you?
Jan Masaoka: Very strong response. Our newsletter’s grown to over 1,000 subscribers with a nearly 40% open rate. We publish quality articles that are well researched and intentionally use more plain language. In a most recent issue, we featured a CPA’s perspective and an interview with Pete Manzo talking about why United Ways of California supports philanthropic reform.
We've gotten many messages from nonprofit staff expressing relief that they weren’t alone in their frustrations with the state of DAFs and philanthropy reform. It’s illuminated how those leading this conversation from within philanthropy, academia, or think tanks are disconnected from the opinions of typical nonprofit staff.
Grace Chai: What philanthropic reforms are at the top of your list?
Jan Masaoka: If DAF donors are going to lock away their money for fifty-plus years before distributing it, we simply argue you shouldn’t be able to take the tax deduction upfront. We also oppose private foundations getting to count transfers to DAFs as part of their 5% annual payout requirement. Tax policy is an extremely complicated and confusing way to influence behavior, but it’s already lost a lot of its use as an incentive for giving because only the top 10% benefit from charitable deductions.
Another area is transparency in foundations and DAFs. We’re now seeing DAFs open fiscal sponsorship services, and vice versa. FinTech is entering the field and combining these functions that are both designed to obscure financial flows. It’s causing a double-black-box effect in which it’s increasingly opaque. DAFs are also now being marketed to smaller donors as essentially a savings account. That’s where we’re seeing the field get worse.
Grace Chai: Let’s get into some hot topics. What do you make about Gates Foundation’s announcement that they are sunsetting early? Would you agree that it seems foundations have been more willing to question operating in perpetuity?
Jan Masaoka: I’m skeptical. There’s a gigantic gap between what people are saying and what they do. There have been a number of foundations, like the Goldman Fund, that announced they were spending down, but then did so by transferring assets to other family foundations and funds. I don't consider that spending down. The Giving Pledge received a lot of attention, but only a small fraction of those pledges have been realized. So I’ll believe it when I see it.
I’m also disturbed by how quickly and zealously the Gates Foundation has stripped equity and racial justice language from its programs. I think it shows how the ultra-wealthy use philanthropy for their own aims, not for legacy or redistribution.
Grace Chai:The United States is pretty unique in how we use federal tax policy as the main mechanism for incentivizing and regulating charitable activity. Do you think that’s the right vehicle to do so?
Jan Masaoka: Theoretically, there might be better options. But in practice, we’re better off with the IRS regulating nonprofits than elected officials. That would be a disaster. The IRS is not a perfectly impartial, apolitical body, but it is somewhat shielded from the whims of politicians.
Given that only the top 10% get tax benefits from charitable deductions, tax policy has already lost a lot of its use as an incentive for giving. And tax policy is an extremely complicated and confusing way to influence behavior. If DAF donors are going to lock away their money for fifty-plus years before distributing it, we simply argue you shouldn’t be able to take the tax deduction upfront.
Grace Chai: Do you see an organizing possibility in this moment? How do you think the crises the nonprofit sector is facing on multiple fronts are impacting its organizing capacity?
Jan Masaoka: I think capacity of all sorts is diminished significantly. The nonprofit sector is very preoccupied: many of their clients are in crisis, and a lot of organizations are experiencing deep funding cuts.
I’m certainly sympathetic to people’s fear of speaking out. But philanthropy reform is a long-term project that requires base building. It's important for people to see there's a place where they can head out to (our “flag in the wilderness”) to connect and organize around these issues. We’ve received a lot of messages of support and appreciation for cultivating this kind of space.
Grace Chai: How do you see the Philanthropy Project evolving in the coming months or years?
Jan Masaoka: We aim to be a hub for nonprofit workers who care about philanthropy reform, beyond just DAFs. We hope that more nonprofits want to speak out more about these issues, whether individually or collectively, through coalitions and associations. We really welcome and encourage nonprofit staff to write about their perspective for us or be profiled by us.
There have been a couple of efforts for legislation in Congress, and we expect to see more of those in the future. A bill is a very good organizing mechanism and stimulus. We can be more effective as a sector if we unite our efforts.
One of our board members at CalNonprofits, Sarah Pillsbury, used to say, “If we're trying to accomplish something that we can do in our lifetimes, we're thinking too small.” That often serves as an inspiration for me.
The nonprofit sector is very preoccupied: many of their clients are in crisis, and a lot of organizations are experiencing deep funding cuts.
People have always been fearful of even whispering complaints about foundations, and fear about all kinds of speaking out have increased. Still, there may not be a more important time to unlock the trillions of dollars in DAFs and endowments to be used for the public good. Early in COVID, many foundations really stepped up to increase funding towards vulnerable populations. We haven't really seen that during this particular crisis, and that’s disappointing.
Fifteen Years Into the Famous Giving Pledge
By Carolyn Karr
Remember Warren Buffet's highly-publicized Giving Pledge? The billionaire challenged others to promise to donate at least half of their wealth during their lives or upon their deaths.
Fifteen years later, philanthropy reform leader Chuck Collins and the Institute for Policy Studies found that only one living Pledger — Laura and John Arnold — has fulfilled the Pledge. And, of the 256 billionaire individuals and families who signed the Pledge, only four are now worth less than $1 billion due to charitable giving. Their conclusion? The "Pledge is unfulfilled, unfulfillable, and not our ticket to a fairer, better future."
So how did this big, uplifting idea flop so badly?
The Giving Pledge was inspired by Chuck Feeney (DutyFree) who gave his $8 billion fortune to charity before he died. Bill Gates and Warren Buffett initiated the Giving Pledge in 2010 as a way to increase charitable giving by U.S. billionaires.
In addition to the disappointing numbers, those who have given away substantial amounts have channeled most of that money to foundations or donor-advised funds (DAFs) rather than to active nonprofits. There it often lies dormant indefinitely—never reaching the causes and beneficiaries that the charitable tax deduction was intended to help.
Meanwhile, the public isn't clear that such donations are subsidized through tax deductions at a rate of up to 74 cents per dollar donated.
While the Pledge may have been designed to diminish dramatic disparities in wealth, the chasm between income groups remains firmly intact. The recently passed tax law, (Trump’s Big Bill) provides massive tax cuts for the wealthiest Americans, making matters worse by further concentrating power over political and social policy in the same miniscule yet hugely influential group.
In addition to the generosity of the Arnolds, one bright spot is Bill Gates's promise to spend down his foundation's entire endowment over the next 20 years, although we wait to see how much is simply distributed to other foundations and DAFs. Alas, few other billionaires are doing likewise.
As the report recommends, rather than waiting for billionaires to give away their wealth voluntarily, we should adopt popular, common-sense, nonpartisan policy measures to direct billions of dollars into charitable gifts. And the most important way to fulfill the Pledge's intent of re-distributing wealth would be to tax wealth at a fair rates.
GoFundMe Disrupts the DAF industry – Seeking 13.5% in "Tips"
GoFundMe Disrupts the DAF industry – Seeking 13.5% in "Tips"
For-profit enterprise breaks new ground, but will it work with its DAF customers?
BY JON PRATT
The largest U.S. crowdfunding platform has launched a special approach to sponsoring donor-advised funds (DAFs), incorporating GoFundMe’s signature revenue source: voluntary tips from donors. While it’s impossible to know whether the new DAF account holders will be as generous tippers as the original GoFundMe donors, GoFundMe’s DAF model represents a major development in the $250 billion DAF sponsor industry.
GoFundMe aggregates a huge market of participating givers, and promotes itself as “the world leader in giving,” serving as a conduit for $40 billion of help for 200 million people, companies, and organizations since 2010. The San Diego company employs 800 people.
Art Taylor, CEO of the Association of Fundraising Professionals (AFP), is enthusiastic about this new approach to DAFs: “GoFundMe’s Giving Fund represents exactly the kind of innovation needed to re-engage everyday donors with institutional giving,” Taylor said. “Their approach shows how technology and user-friendly design can bring everyday givers into organized philanthropy, helping institutions cultivate the broad donor base they need.” Taylor hopes that similar innovations will help counter-act the overall decline in charitable giving.
Business model based on "tips"
GoFundMe’s business model relies on “tips” to the company, made in addition to donors’ contributions routed to personal or charity fundraisers. Fundraisers can go to individuals, nonprofits, or for-profit companies, but tips given to GoFundMe are not charitable contributions, since they go directly to a for-profit company, and are not taken out of the contribution to the fundraising campaign.
The main GoFundMe platform asks donors to give a tip after a donation amount is entered, with a frequent default percentage of 13.5%, to “operate our service.” A sliding bar allows users to make a tip above or below the default tip, which is typically set at 13.5% for the GoFundMe Giving Fund. Default tip recommendations are dynamic and can vary, with the majority of GoFundMe donors either selecting a custom tip amount or choosing not to tip. This suggests that users know tipping is optional, that tips don’t directly benefit the cause they have selected, and it’s up to them to decide whether and what to pay GoFundMe for providing these services.
Innovations at GoFundMe's DAF
Several distinguishing elements set GoFundMe’s Giving Fund strategy apart from the many commercial and community foundation DAF sponsors, making it potentially more attractive to modest income givers who don't have wealth managers:
- Completely avoids using the term DAF, calling its new service the GoFundMe Giving Fund https://www.gofundme.com/c/givingfunds (in sharp contrast with Schwab Charitable, which surprisingly recently rebranded its DAF division “DAF Giving 360”).
- Does not have a minimum opening account size, and does not charge administrative fees (unlike Vanguard’s $5,000 minimum and 0.6% annual fees)
- Allows a $5 minimum contribution size from the account to eligible charitable organizations, smaller than Vanguard’s $50 or Daffy’s $18
- Integrates investment options with BlackRock, Vanguard and State Street investment portfolios, allowing donors to select from a limited number of investment pool options with varying risk and return objectives
- Provides a mobile and small donor friendly platform for its DAF’s, promoted simply as “Set it. Invest it. Give it away.” Expects to continue to innovate with tools like in-video fundraising and integration with Instagram
- Establishes a more-rigorous-than-usual minimum donation requirement than other DAF sponsors such as community foundations. Both often have rules requiring that at least one donation be made every two or three years or the DAF sponsor can either make donations from the DAF or assume total control of the DAF. GoFundMe claims a noble purpose: “Traditional DAFs hold more than $250 billion donated for charitable purposes, yet each year, the vast majority of those funds go undistributed.” But similar requirements are often overlooked or managed by a DAF sponsor simply making one $50 donation each year to allow the DAF to stay virtually untouched.
No "platform fees," yet . . .
A well-known example of a GFM campaign business model and the amounts at stake. George Floyd's memorial campaign on GoFundMe, created by Floyd's brother, Philonise Floyd, set a record for the most donations at the site, receiving $14.7 million from 500,000 donations. Before tips are figured in, donations are subject to a 2.9% processing fee, and a $.30 per donation charge. If donors to the Floyd fundraisers tipped at the 13.5% default percentage, they would have transferred $1.98 million to the GoFundMe business, on top of processing and transaction fees.
While the default tip may be 13.5%, GoFundMe does not report their tip income, business plan or much else about their finances. What would the Floyd family make of the amount and use of tips related to their fundraising campaign? They would have no idea, since GoFundMe fundraisers cannot see whether or how much their donors tip GoFundMe. “The tipping feature is designed to support the platform's operational costs (e.g., customer support, safety tools) and is separate from the donation amount directed to the fundraiser," says GFM.
Why can’t organizers see tip data? GoFundMe says:
- Privacy: GoFundMe treats tips as a separate transaction between the donor and the platform, not part of the fundraiser’s funds.
- Focus on Donations: The user's dashboard prioritizes tracking donations, withdrawals, and donor messages—not platform fees or tips. If you’re an donation organizer concerned about transparency, you can reassure donors that 100% of their donation (minus standard payment processing fees) goes to your cause, regardless of whether they tip GoFundMe.
GoFundMe’s business activity (not including donations routed through PayPal and other conduits) is estimated at $55 million per year, compared to annual processed donations in the range of $2 billion, which might suggest that tips average 2.75%, but each of these numbers is unknown.
A Philanthropy Project colleague was among the first to set up a GoFundMe Giving Fund account, a process they experienced as simple and accessible as advertised. When they recommended a $50 transfer from their Giving Fund account to a Public Radio charity, they decided to change the Giving Fund tip option by moving the slider (which was then set a 18.5%) from 18.5% to 0%.
Nevertheless, the platform persisted, asking a second time for a tip to the platform:
Our colleague did leave a tip, and learned that the tip is deducted from the amount in their giving fund, so is part of the charitable contribution.
Democratizing tax incentives (but not for funding DAFs)
Unfortunately for modest income givers, Congress’s new $1,000 single/$2,000 couple above-the-line charitable deduction for non‑itemizers (effective for tax year 2026 and beyond), cannot be used to deduct contributions made to the GoFundMe’s Giving Fund (or other DAFs), but taxpayers who itemize can, frustrating its democratizing philanthropy ambition. (For Congress, other than this 2025 action to discourage mid-size donors from donating through DAFs, there remains a compelling agenda for serious DAF disclosure, self dealing and payout requirements.)
Since GoFundMe’s founders (Brad Damphousse and Andrew Ballester) sold the company to venture investors in 2015 when it was valued at $600 million, it has continued to grow organically and through acquisitions of CrowdRise (2017), YouCaring (2018) and Classy (2022). There’s no publicly known updated net worth or valuation since then, and as a private, profitable company, GoFundMe does not disclose detailed financial info like revenue, profits, or current market value in public filings.
Robert Solomon, GoFundMe CEO from 2015 to 2020, described the opportunity to the Wall Street Journal: “I think we can become the giving layer of the Internet,” Solomon told WSJ. “In North America alone, nonprofits are a $300 billion-a-year industry. There’s a lot of fat in there. If we do our jobs well, we can remove friction as it relates to giving.”
We asked GoFundMe how tips from Giving Funds will be used, and whether they are tax-deductible, and they responded:
If a donor voluntarily decides to tip from their Giving Fund, these dollars are allocated to a Board-designated fund of GoFundMe Giving Fund to be used exclusively to support the organization’s [GoFundMe Giving Fund's] charitable purposes. This Fund is segregated from all other funds of GoFundMe Giving Fund, overseen by its Board of Directors, and used to support operating expenses of the charity and/or other mission-aligned, charitable programs or projects identified by the Board. Tips are completely optional and do not impact either the amount received by the supported charities or the donor’s tax deduction.
Accordingly, some of the tips from GoFundMe Giving Fund’s DAFs can go to pay GoFundMe.Inc. operating expenses, and some to unspecified charitable activities. GoFundMe Giving Fund has a services agreement with GoFundMe Inc. to provide a range of administrative support, technology, and operational services, and compensates GoFundMe, Inc. at a fair market rate for those services. Fidelity, Vanguard and Schwab have similar relationships for their public charity arms to pay their for-profit parent, which in Fidelity’s case was $127 million in 2023.
It is rare for businesses to build in a tip function of extra money for the business entity itself, as opposed to directing tips to front line service workers, wait staff, etc. to thank them for their service. While tipping overall is attracting increased public debate, GoFundMe’s position as the single largest U.S. recipient of tips has not.
Questions remain
Will tipping GoFundMe as the DAF sponsor make sense to new DAF donors, even with its free and more flexible platform?
And how might greater public awareness of the profit nature of the underlying platform affect public willingness to finance it through tips?
These are some of the big money questions GoFundMe’s unique DAF product is asking. The extraordinary $250 billion growth of funds held in DAF accounts inspired a lively scramble to get into the business. Now GoFundMe Giving Fund’s launch has brought a welcome dose of innovation and competition to the DAF sponsor space, with lower costs and potentially faster payouts. Clearly this part of the DAF sponsor industry will be under a very close watch to see how DAF donors respond.
= = =
Special thanks to Dan Petegorsky for assistance with this article.
More about uses and costs charged to DAF funds to come. The Philanthropy Project is committed to following the money, making the case that, as much as possible, charitable funds should be used to benefit the public. [see also: DAF Universe Spawning FinTech Startups]
Grantmakers and philanthropic reform
As various proposals for philanthropic reform have emerged, most associations of grantmakers have opposed them or stayed conspicuously silent. Philanthropy Northwest – a network of nearly 140 foundations in six Pacific Northwest states – stands out.
Marc Moshcatel is the Public Policy and Research Analyst at Philanthropy Northwest, interested in understanding how public policy and philanthropy impact people – and most importantly, how these institutions can do better.
Q: Marc, unlike many philanthropy-based institutions, Philanthropy Northwest has supported regulation to increase transparency and payout by donor-advised funds (DAFs). How have foundations and donors reacted to your taking this position?
Marc: Our policy position states that "we favor regulation to increase transparency and payout of donor-advised funds (DAFs), and we support increased education and research to help us deepen understanding of the complexities and considerations to inform our stance on specific proposals." There is more on our website about DAFs and our positions.
There's been a wide spectrum of reactions to this position, with some supportive of reform, some opposed, and some in favor of some reforms and not others. Ultimately, the Philanthropy Northwest board adopted this position with the understanding that philanthropic vehicles like DAFs need to be accountable by getting resources to communities in a timely manner.
Q: Philanthropy Northwest has urged policymakers to replace the current charitable tax deduction with a universal tax credit to make it available to more people. Why would this be a better option to encourage charitable giving?
Marc: One of Philanthropy Northwest’s policy goals is to bring more resources to communities. Unfortunately, the charitable deduction isn’t the most effective solution. People across income levels and demographics give to charity, but the charitable deduction is designed for wealthy donors, the vast majority of whom are white: most of the tax break goes to the top 1% and less than 10% of the deduction benefits donors of color. Providing this benefit mostly for high-income donors costs taxpayers roughly $60 billion per year. The new tax bill will shift these numbers, but the trends will likely be the same.
And by centering the wealthy, the deduction inadvertently pushes nonprofits to cater to the interests of a select few rather than communities at large. Tax analyses have found that replacing the deduction with a universal tax credit – such as 25 cents back per dollar donated – would increase giving, bring in millions of new donors, and distribute the tax benefits more fairly. It could be refundable to some extent so that lower-income donors get the benefit. Also, putting a sufficient floor on the incentive – a minimum threshold people must donate to get the incentive – would significantly reduce the amount of taxes lost.
Q: Kudos to you and Philanthropy Northwest for taking such strong stands on DAF report and improvements to the charitable deduction!
Q: Next, after a series of Trump administration executive orders, organizations of all types are being strong-armed to step back or eliminate positions and practices on DEI (diversity/equity/inclusion) with which the Trump Administration disapproves. For example, Charity Navigator recently dropped a part of its rating system, the section of the Culture & Community beacon asking about commitment to equity and inclusion practices. How are your members reacting to these anti-DEI pressures?
Marc: The anti-DEI pressures have created uncertainty and plenty of questions from our network. [They wonder] Can I still do this program for my community? Can I still say certain things when describing my work? Is my organization next to lose federal funding, or have its nonprofit status threatened?
We have hosted conversations and programs with legal experts to keep people updated and emphasize that organizations should not preemptively halt their efforts out of fear, because doing so gives the executive orders power they might not actually have. “Do not obey in advance,” as Timothy Snyder wrote in his book On Tyranny. Charities and funders must stand up for their values by continuing to support their communities.
Q: Foundations in the Pacific Northwest have a reputation of being more progressive than in the rest of the U.S. Why do you think that is? What should other parts of the country know about how philanthropy has evolved in the Northwest?
Marc: I didn’t realize that was our reputation! Maybe it comes from having some foundations based in the Seattle and Portland areas (for reference, Philanthropy Northwest’s region includes Alaska, Idaho, Montana, Oregon, Washington, and Wyoming). The rest of the country should know that the Northwest covers a very diverse spectrum of philanthropies that come from and support a variety of communities. For examples of how the area’s work has been evolving, I recommend Philanthropy Northwest’s 2024 Annual Report, as well as our new report discussing lessons learned from a cohort of community foundations, identity-based funders and United Ways.
Q: What advice do you have for the Philanthropy Project on making the case for DAF reform?
Marc: I think DAF reform is a microcosm of a larger conversation concerning wealth inequality, as well as concerns around the accountability of moving resources in the public and charitable sectors. Most people might not know exactly what a DAF is. However, they know that the rich have too much power while most people struggle to make ends meet. They would like to see more resources reach their communities. They want these resources to be spent in an accountable manner in alignment with their communities’ needs.
We should make the case that DAF reform is one of many ways to help make that happen.
Q: Is there a question we didn't ask, but should have?
Marc: None that I can think of! We're pleased that the Philanthropy Project exists, and thank you for the chance to lend some support.
You can read more from the Philanthropy Project at www.philanthropyproject.net, and you can subscribe here.