Gilded Giving 2024

2024 update of Gilded Giving (GG 2024), 44 pages, entitled Saving Philanthropy from Wall Street, observes: “the transfer of wealth out of private hands, ostensibly to non-profit organizations working for public benefit, is being captured by Wall Street’s wealth defense industry.”

This report, the fourth installment in the  Institute for Policy Studies Gilded Giving series since 2016, highlights the way wealth management firms have tightened their hold on funds that have received charitable deductions—a grip which is seemingly permanent. That is because wealth managers are using a range of techniques, cultivating beliefs and attitudes, and continually developing technical systems—all of which are designed to retain philanthropic wealth within their purview as ongoing “assets under management” (AUM).

Further, GG 2024 demonstrates how ultra-high net worth individuals access cash from their pools of wealth tax-free by borrowing to avoid earning taxable income, noting that “their philanthropic practices mirror their tactics to accrue, preserve, and defend their wealth.” By including philanthropy management in their array of services, wealth managers can earn fees, increase clients’ holdings of charitable funds, and generate tax benefits for those clients, notwithstanding the fact that these funds have been deducted from the donor’s taxable wealth via tax deductions.

The developments spotlighted in GG 2024 illustrate the blurring of the line between charity and investment. Indeed, donors, with the help of professionals, are pioneering the use of financialized instruments such as LLCs, impact investing and recoverable grants. These techniques preserve the charitable funds under their control. The statistics are staggering. For example, the number of wealthy donors engaging in impact investing doubled over the past three years and 40 percent were using impact investing in place of some or all of their charitable giving.

There are additional, abundant efforts afoot to generate fees and otherwise profit from the charitable tax-exempt funds donors are holding. GG 2024 points out that these choices have made our working charities “fragile, over-dependent on fewer donors, and vulnerable to profit-seeking from emerging technology and investment trends. This is dangerous for our society and for nonprofits, who increasingly must accommodate the priorities and behaviors of wealthy donors.”

GG 2024’s key findings include:

• The share of giving to intermediaries keeps expanding. In fact, donor-advised funds (DAFs) and foundations together receive 35 percent of all individual giving in the US; by 2028, they will take half of all individual giving. Moreover, every year, an additional two cents of each dollar donated by individuals is channeled into intermediaries.
• Tech and finance companies are seeking opportunities to profit from charitable giving, reducing the amount that reaches working charities. More tech companies promote DAF-related platforms, apps and other means to ensure that charitable funds remain AUM.
• Four DAF sponsors closely linked to the tech sector grew by 237 percent between 2020 and 2022.
• The financial industry is taking an array of measures to help lessen the distinction between investment and philanthropy, encouraging a “seamless continuum” between the two. Recoverable grants are becoming more popular and DAFs are being promoted as part of the donor’s estate planning.
• 18 percent of the 107,000 private foundations that filed annual tax returns electronically in 2022 paid compensation to at least one trustee that was a bank, a trust company, or a wealth management company.

One way of ensuring that these developments continue to grow robustly without challenge or question is to prevent the enactment of common-sense reforms to the regulation of philanthropic activities. And defenders of the current weak regulatory structure are doing just that—lobbying against any change, no matter how sensible or necessary, that would protect the integrity of the U.S. system of tax-exempt charitable giving.

GG 2024 concludes, “[O]ur system effectively classifies pools of capital under management as charities — which both increases inequality and shortchanges groups on the ground doing actual charity work. When Congress formed the laws that govern our charities over 50 years ago, they didn’t intend for things to look this way.”

Gilded Giving harkens back to the inequality, business dominance and conspicuous consumption of the 1870’s (with a tip of the hat to Mark Twain’s 1873 novel The Gilded Age: A Tale of Today, which itself lent its name to that earlier era).