DAFs Are a Monument of Wealth and Power That Must Come Down
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Black Lives Matter protestors at a Confederate monument in Raleigh, North Carolina. Bryan Regan/shutterstock
Corporations and major donors have made giant donations for racial justice in the past month of uprising, unlike in any other moment we’ve seen. In philanthropy, we should welcome this influx with the healthy skepticism it deserves. As a sector, we must create high standards of transparency about the distributions of these funds, or else we risk serving as a cover for donors to hoard wealth while reaping the new social clout of associating their brands with social justice.
A key place to start is building consensus within the sector that we must increase transparency and payout requirements for donor-advised funds (DAFs), which enable individuals to “donate” to accounts designated for charitable purposes, but without requiring any of those funds to be paid out or accounted for publicly. The push to reform DAFs is picking up momentum, as the #HalfmyDAF and #CharityStimulus campaigns gain traction on Twitter, and a California bill advances through the legislature that, if passed, would establish the first reporting requirements for DAFs in the country.
Part of philanthropy’s mandate in this critical moment is to interrogate the ways in which our old structures uphold white supremacy—and dismantling DAFs as we know them is a great place to start.
As traditionally structured, DAFs operate under the assumption that the presumably white, wealthy donor knows what’s best; their structure is premised on this same donor being trusted to hold millions of dollars privately and untaxed, imparting “charity” when and where they see fit, with zero requirements for accountability and transparency. DAFs also reinforce the ideological belief that as a whole, this class of donors is best equipped to solve social problems rather than pay taxes to the government to fill public, transparent (or at least more transparent than DAFs) coffers.
At a time when philanthropy should be opening our checkbooks both to increase payout and show the ledger, the sector is moving in the opposite direction. From 2012 to 2016, while giving directly to charities grew only 15%, donations to DAFs grew by 66%. In 2018, nearly 13% of all individual giving went to DAFs. Without a mandatory spend-out, DAFs simply act as tax havens where millions of dollars of wealth, often accrued through exploitative means, sit undisturbed. And when they do make payouts, their completely opaque nature can even enable donors to bolster hate groups that operate under a 501(c)(3) status. But whether or not a DAF holder has nefarious intent, the basic assumption of the structure—that the wealth holder should hold all the power—needs to change.
One critical way to force transparency on DAFs is by law, one approach for which nonprofit leaders have advocated in California. On June 10, California’s State Assembly passed Assembly Bill 2936—if signed into law, this legislation would enable the California attorney general to establish reporting guidelines for DAFs and would become the first regulation on them in the country. If implemented, it would introduce essential oversight and accountability, and also hold the potential to compel these funds to pay out instead of sitting on the money indefinitely. This would also translate into a massive influx in tax dollars to state coffers; it’s estimated that wealthy people avoid $340 million in state taxes through DAFs in California annually. Right now, this bill is heading to the state Senate committees and potentially to a Senate floor vote.
Further, California’s leadership could set the stage for a change to DAF legal requirements at the federal level. The #CharityStimulus campaign is calling on Congress to both double the minimum payout for foundations (to only 10%) and impose the same rules on DAFs. At a time when all institutions should be undergoing a serious reckoning about their complicity in white supremacy and failure to prioritize equity, these pieces of legislation can form a key step toward holding philanthropy accountable.
But we don’t have to wait for the law to catch up to change DAFs ourselves. In my book “Decolonizing Wealth,” I emphasize that we each have a role to play in addressing the way colonialism and white supremacy are embedded in ourselves and our institutions. That’s why I, maybe surprisingly to some, started my own donor-advised fund. In 2019, I launched Liberated Capital, which provides untethered resources to support Black, Indigenous and other people-of-color-led initiatives working for transformative social change.
We have used the setup of the DAF structure to move money to the ground quickly, but unlike other DAFs, we operate transparently, with a circle of Indigenous leaders deploying trust-based funding to grassroots organizations most impacted by historical and systemic racism. With this model, we created a COVID Emergency Response Fund for hard-hit Indigenous communities, and so far, have disbursed $509,000, which has benefitted over 250,000 individuals in Native communities across the country. In the wake of the murder of George Floyd, and subsequent Black-led uprising for justice, we were also able to pivot our focus to support Black-led organizing in the immediate aftermath of uprisings in Minneapolis, committing $35,000 from the start. In all of this giving, our commitment is to move funds transparently, eschewing traditional reporting models to be able to respond to community needs in real time.
Unfortunately, DAFs like Liberated Capital are the exception and not the rule. That’s why I urge family foundations and DAFs to publish their donations for racial justice in 2020, along with what percentage of their funds they are deploying—and challenge their peers to do the same. We must create a new sector-wide standard that interrupts business as usual. Philanthropy must cede control and hand over the reins and cash to Black, Native and other communities of color leading movements on the ground. Transparency and increased payout for DAFs are just a start.
Edgar Villanueva is the author of “Decolonizing Wealth: Indigenous Wisdom to Heal Divides and Restore Balance” and the founder of Liberated Capital, a philanthropic initiative designed to practice the values of reciprocity and equity outlined in the book.
