r/TrueReddit • u/D__Miller • 22d ago
Policy + Social Issues The Rich Are Hoarding Their Wealth Using Charity Funds
https://jacobin.com/2024/12/ultrawealthy-charity-funds-dark-money337
u/D__Miller 22d ago
Submission Statement:
Donor-advised funds (DAFs), managed by major financial firms, are increasingly dominating U.S. charitable giving, expected to collect half of all donations by 2028. Offering wealthy donors immediate tax breaks without requiring disbursements to charities, DAFs often serve as vehicles for hoarding wealth, supporting extremist groups, and influencing politics anonymously. Critics argue they divert funds from working charities while enabling tax avoidance. Efforts to reform DAF regulations face pushback from the financial sector, leaving the growing influence of these funds largely unchecked.
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u/IKantSayNo 22d ago
Rich people used to leave their money to "the preaching of the gospel" at mainline churches, "the advancement of knowledge" at universities, and "scientific progress." Now, they leave it to [high sounding patriotic] educational funds that promote aspiring lawyers and influencers to push "No matter how right you are, we're farther to the right than you." And dark money continues to push this idea long after the donor is dead.
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u/ApplesMakeMeItch 22d ago edited 22d ago
There are pros and cons to DAFs in my opinion:
- The nature of DAFs allow someone to pack several years worth of charitable deductions into a single tax year while still doing charitable giving more evenly over those years. I have convinced many of my clients to utilized DAFs in large tax years (like when they sell a business or property) and in some of those cases I am certain they ended up setting aside more funds for charity than they otherwise would.
- They are very low cost funds that can be utilized by people who are not super wealthy. I'm a CPA who is paid well, but I'm not a business owner and don't have generational wealth. I'm a well paid wage earner in a small to medium sized US market. I've been able to utilize a DAF to "pack" itemized deductions for a lower overall tax outcome. I take 3 or 4 years worth of planned charitable donations and put them into the DAF in year 1. The charitable organizations see no difference in when they receive my donations, but I get a better tax outcome.
- The funds in a DAF are ONLY allowed to be given to tax-exempt registered charitable entities. They cannot be used directly for a political campaigns, PACs, lobbying, etc. However, there are many "charitable" entities that are really political entities in disguise.
- The funds within the DAF can be invested and their growth is tax-free. For me, this means that for every $10,000 I put into the fund, I may end up being able to donate $12,000 to $15,000 over a few years due to the growth.
- On the downside, I and my clients end up paying less in income taxes. I see this as a downside on a larger scale. Personally, I calculate the tax savings each year and then put that savings toward charitable ends (I would feel quite guilty if I didn't...), but that's probably not what most users of a DAF are doing.
- You could argue that the alternative is giving the full amount of funds to a charitable organization right now which would be better than doing so over a several year period.
EDIT:
- Another piece of information I think is important to state, a DAF is very different from a Private Foundation.
With a Private Foundation, you can use funds to employ people within the entity to manage the entity. In many cases this becomes a way of enriching the family and friends of those who created the Private Foundation. Only a small portion of the Foundation's funds are really required to go toward the "charitable purpose" and that stated purpose is highly malleable.
Compare that to a DAF that is strictly an investment fund where the value of the assets are to be used for charitable purposes. There is no corporate "structure" to it. It's not a separate legal or filing entity. It cannot have employees and the administrative fees are restricted to the typical investment fund cost to the administrator (like a Charles Schwab, JPMorgan, or other just like the costs associated with having a personal investment advisor). As such, it is far simpler and cannot be manipulated in the same and vast ways that a Private Foundation can be manipulated.
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u/cogman10 22d ago edited 22d ago
The funds in a DAF are ONLY allowed to be given to tax-exempt registered charitable entities. They cannot be used directly for a political campaigns, PACs, lobbying, etc. However, there are many "charitable" entities that are really political entities in disguise.
With a Private Foundation, you can use funds to employ people within the entity to manage the entity. In many cases this becomes a way of enriching the family and friends of those who created the Private Foundation. Only a small portion of the Foundation's funds are really required to go toward the "charitable purpose" and that stated purpose is highly malleable.
The laws around a charity are extremely loose. And that is a big issue with charity in the US. Pretty much the only limit for a 501c3 charity is they can't directly support political candidates. Otherwise, they are free (and encouraged) to promote any social cause that you like. Including "whatever the platform of the X party is are the causes we support".
And where a lot of the grift lay with private foundations is they can do things like buy private jets and provide transportation to foundation guests/members/president to locations of interest to speak on the very important issues of the foundation (for a fee of course and with expenses like lodging paid for). Some of that may be against SOME state laws but it certainly isn't a problem federally.
In other words, the wealthy get a nice tax free vacation investment fund at the cost of giving a 30 minute speech to their best friends at a luxury resort. That's what's gross about these funds and where there should be regulation.
Edit: And let's also not forget that these offer very clear avenues for bribery of politicians. "I'm not giving you $1 million dollars, I'm giving your foundation $1 million dollars. Also, would you take a look at this hand crafted legislation". You have to be an actual moron like Menendez to actually get prosecuted for taking bribes.
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u/iridescent-shimmer 22d ago
I worked at a DAF for years and performed due diligence for grants out of accounts. It's very strict. No money can go from a DAF to a private non operating foundation, which is a type of legal structure that doesn't have the same tax deduction as a DAF. They cannot see any personal benefit, so no DAF funds can go toward charitable events unless the account owner isn't going and isn't giving away their tickets, etc. I had to call and confirm all of this stuff every single time. Definitely couldn't go to any 501c4, so we always had to confirm that funds would only be used by the 501c3 and that bank accounts were separate (for orgs that have both.) The few times funds were used illegally, the money was returned to the DAF provider, the user lost their account access, and any appropriate legal charges were pursued by local jurisdiction.
FWIW, you either believe in endowed giving or you don't. A DAF is no different than a college endowment fund. There are absolutely pros and cons to this, and I believe smarter regulation could be very helpful. But, DAFs have been around for a long time at community foundations doing a lot of good. Most of the criticism comes from those held with the big 3 investment companies (Fidelity, Schwab, and Vanguard.)
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21d ago
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u/Upvotes_TikTok 21d ago
To be fair on your last paragraph it depends what the baseline is. For example a donation to Harvard that goes into the Harvard endowment also doesn't help anyone today. Only the fraction of the endowment Harvard spends goes to help today.
I'd personally solve the actual problem (wealthy people hoarding money) by simply taxing them as this loophole would be very hard to close without going after all charities as a donor advised fund isn't much different than a charity with an endowment that just gives to other charities.
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u/iridescent-shimmer 21d ago
I mean, if charities are doing that, it's illegal. They are risking their nonprofit status. The same could be said about any other illegal bifurcation whether they use a DAF or not. If they claim it as a full charitable deduction after receiving a benefit, it's still illegal.
Yes, DAFs help with allowing donors an actually anonymous form of giving, which I think is kind of nice tbh. I used to handle a few of those accounts, and some people just really don't want their name on a building. Criticizing DAFs for both of those types of "loud" and anonymous giving (which has happened on this thread, not by you though) really just comes down to issues with all forms of giving. Whether people use a DAF or not, charitable donations are a form of power and prestige.
The one positive of a DAF is being able to donate complex assets, like life insurance policies or art pieces, that many smaller charities wouldn't know how to handle.
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u/ApplesMakeMeItch 22d ago
I totally agree regarding Private Foundations as well as the behavior of many 501c3s (we are all morally obligated to research the entities we are giving money to). My comment was in response to specifically DAFs which I look at in a much more favorable light than Private Foundations.
DAFs are for anyone of nearly any income or wealth level wanting to give money to charity and include some tax strategy.
Private Foundations, from what I've seen, are pretty exclusively the realm of those with a net worth of $50m or more.
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u/anotherucfstudent 21d ago
I’m also a CPA, though I switched fields a few years ago so my knowledge of accounting continues to atrophy.
While I agree with you that Private Foundations are generally only in the domain of the $10-50M+ crowd, I don’t really understand why.
I set up my extended family with what is essentially a family office with a Private Foundation under management, structuring investments and donations while being a vehicle for lower taxes and asset protection, but my net worth is under $1M.
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u/aridcool 21d ago
That seems like the real problem here.
I know we want to encourage charity and giving but some of these things should not be charities. I'm not even just talking about right wing groups. IIRC, there are Islamic charities which have turned out to basically support international terrorism. No not all Islamic charities, obviously. But one instance I recall in 2001 the FBI seized the servers of an Islamic charity in Texas. There was a lot of criticism on slashdot about this. This was shortly before 9/11. And you hear about others being watched closely.
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u/ModivatedExtremism 22d ago
Solid explanation. Thanks for taking the time to post it.
I also use a DAF. Definitely isn’t for “hoarding” - for us, it is just a more efficient means to organize our annual charitable donations. Fully agree that it’s a different animal than the “private foundations” and myriad of not-really-a-charity “charities” that have sprouting up like weeds.
As someone who has worked in a nonprofit policy role, I wish more Americans really understood how bad the defunding of the IRS has been for the majority of us. Their ability to enforce rules on nonprofits, churches, etc. has been largely stripped by the bad actors who are also taking full advantage of the lack of oversight.
The gutting of the IRS and the Supreme Court’s Citizens United ruling has led to a tsunami of largely tax-free money which is flowing into the hands of political operatives right now…and they are spending multi-millions on propaganda to distract us from the damage they are doing in our communities.
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u/ClaymoreMine 22d ago
When the IRS becomes the bogeyman that the wealthy and donor class look under the bed for the better society will be.
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u/-oRocketSurgeryo- 22d ago
Donor advised funds also provide a way to conceal donations to politically aligned charities; i.e., they're a conduit for dark money.
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u/aridcool 21d ago
Are they hoarding wealth...or power? It sounds like they don't get to keep the money but they do get to use it to influence the things they want. There is a distinction and it may place them on the side of legitimacy. That said, some of these things probably should get a second look at whether they are true charities.
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u/iridescent-shimmer 22d ago
Written by someone with literally no understanding of DAFs and tax law. This statement is so factually inaccurate, it's absurd. DAF funds cannot be used for political efforts, can't go to 501c4 organizations, and therefore have nothing to do with dark money in politics.
There are very valid criticisms of DAFs, none of which are even mentioned here.
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u/Peach_Mediocre 21d ago
Who’s the CEO of the worst of these DAF’s? Just like, for no reason or whatever
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u/BigBennP 22d ago edited 22d ago
I don't know if saying that the wealthy are "hoarding their wealth" by using Donor-Advised Funds is really a fair statement, but the headline is from Jacobin, so I guess take it for what it's worth.
/u/ApplesMakeMeItch hits on the key points regarding a DAF
In laymans terms, a DAF is creating your own nonprofit corporation that you manage, and donating money to that nonprofit for tax purposes and then using that nonprofit to make charitable donations separately using that money rather than just donating money directly to charities. It adds a layer between you and the charity you're giving money to.
Once you donate it, the money belongs to the nonprofit, and can only be used for charitable purposes. You can't just take it back. It's not your money any more, it's the charity's money. However, if you are controlling the nonprofit, you can still control where it goes and make donations as you see fit.
There are two big benefits:
Imagine you give $10k per year to charity. You don't have to find which charity you want to give $10k to this year just for the sake of doing it this tax year. You can consistently donate $10k to the fund, and then make a big donation of $50k three or four years from now when you see an opportunity you like, without sacrificing any tax benefits.
The money in the fund can grow tax free inside the fund and ultimately becomes self-sustaining and/or supports a higher level of donations based on investment gifts. When I worked for a large law firm, an advisor described that if they donated $40k per year into a fund, it could turn into up to $1.5 million in charitable donations over 20 years.
But what's the flip side, how does it benefit the super-wealthy to do it this way aside from saving tax dollars? There are two points to be made.
If you have a large charitable foundation, it is permissible for the foundation to hire paid staff to manage it and to have normal business expenses associated with the management of the foundation. So "the foundation" can pay for travel and hotels associated with Charitable events, and friends and family can be paid salaries for jobs helping to manage the family foundation which may or may not require much actual work.
Charitable giving is a form of influence peddling. The charity doesn't care whether the check comes out of your personal check account or your fund. You have your fund donate $40k, you get your family name on a big banner advertising you as a "gold sponsor" of whatever event or organization, and you get invited to the society gatherings for donors where you can network with other rich and famous people. There might also be under the table in-kind trades for charitable donations. like, hypothetically, the admission of a child to a prestigious private school, and they can be made from a fund like that. The added benefit is then all of this charitable giving comes from the "foundation" created with pre-tax money that grows un-taxed inside a charitable foundation.
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u/iridescent-shimmer 22d ago
This is factually inaccurate. DAFs are not at all private foundations and once money is donated to a DAF, it legally cannot be granted out to a private non operating foundation. I literally did this job for years.
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u/nope_nic_tesla 19d ago
I don't see how your comment here contradicts anything in the comment above?
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u/EVOSexyBeast 20d ago
Did you get paid for the job or did all the money go to the private non operating foundation 🤔
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u/iridescent-shimmer 20d ago
I worked for a DAF performing due diligence on grants out from accounts to charities. I had to call nonprofits and collect copies of their tax forms, had to verify things with the IRS, had to run names and orgs through the SDN list. No one in these comments or articles seem to understand basic IRS regulations.
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u/Faerbera 19d ago
From my perspective, I understand IRS regulations because they apply to operating nonprofit organizations. Your salary is paid by a fee to manage the DAF. My salary would be paid by charitable donations to my nonprofit, except there’s no requirement, so the money sits in dragon-hoards and my staff don’t get pay raises. All while making sure we have admin expenses as low as possible, and have candid platinum certification and all of the other hoops the DAF managers make us jump through in lieu of receiving donations that support our mission.
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u/iridescent-shimmer 19d ago
Huh? Your response seems to be a personal gripe and doesn't seem to be adding to this particular conversation. And my salary isn't paid for by a DAF anymore. I haven't worked there in years, because the pay is so abysmal (since it's also a nonprofit.) Even now, I still advocate for higher salaries in the nonprofit sector and fight the overhead myth, because it's bullshit that ensures only idiot elites with no understanding of poverty can afford to do charitable work. That's not DAF specific though.
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u/pyrojoe121 22d ago
I think you are mixing up Donor Advised Funds and Charitable Foundations, which are two very different beasts. For Donor Advised Funds, you don't manage the money and cannot receive any benefits from the grants.
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22d ago
I previously shared this in the Social Work forum where newer SWers were surprised at how badly run most non-profits and charities are. DAFs are a logical step based on the deterioration of the social contract:
The non-profit system (in general) is a tax avoidance & reputational laundering tool for the rich. It behooves the system to have that level of coldness/separation from the actual progress.
Additionally, those with power in this system are the folks who can get to sources of funding and then separate the source from their coin. It's also the folks drawn to power being those who least deserve it.
A working rule I have in helping professions is that the closer someone is to the source of funding, the less you can trust them to act in the interest of those who utilize services.
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u/c0delivia 22d ago
They’ve been doing this for forever. The Patagonia billionaire is notorious for this in particular. And when he did it, he had the entire media suck him off to completion for multiple days for “giving all of his wealth to charity”.
In reality, he created a charity, put his kids in charge, and then gave the money to them. It was a tax dodge and nothing more.
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u/blackmobius 22d ago
Oh look, more tax fraud and wealth hoarding.
The murder of that ceo has unleashed a flood of these investigative reports on just how much money the rich have already. Man 2025 is shaping up to be wild indeed
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u/Gaothaire 22d ago
The CEO was also the subject of a DOJ investigation into insider trading and the monopoly United Health is developing in the healthcare space. If we want to wear our conspiracy hats, we might wonder whether the surprisingly competent assassin, with words written on his bullet shells (like a movie) to paint him as being motivated from the side of the masses, was hired to clean up a problem for the billionaire class before the CEO could cut a plea bargain by selling his fellows under the bus
Truly, either scenario is cyberpunk levels of bonkers (the assassin tossed a burner phone in an alley and escaped down on an e-bike? I mean, come on, the drama of it!), and I don't know that we'll ever get a clear answer, but it's all great fodder for our own world building
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u/pillbinge 22d ago
We have to stop calling it charity. The original meaning meant, paraphrased, good acts toward others in order to get close to God. These were godly acts to help you reflect on both God and the help you gave others, separate and together.
Far cries from tax programs that essentially transform tax dollars into advertising and awareness for your company. Why fund schools when you can fund anything and get specific credit for it?
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u/Financial_Friend_123 21d ago
Who cares what people do with their own money? There's so much drama about the rich, and while I'm not Bezos well off, a lifetime of working 60+ hour weeks and investing has allowed me to donate monthly to multiple charities. If I'm not doing well, I'm not donating, and neither are most of the people who do, it's that simple.
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u/Sansa_Culotte_ 19d ago
Who cares what people do with their own money?
Good point - we should get rid of tax breaks for charity donations.
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u/Frog_and_Toad 22d ago
Its about family and friends. My charity can hire my nephew as a consultant. Money stays in the family. Its all good.
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u/aridcool 21d ago
Charities can and do get audited and rated. Is your nephew actually producing labor that helps the stated goal of the charity?
But yes, it is still relatively weakly regulated. Worse, we allow too many things to be charities.
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u/ClockOfTheLongNow 22d ago
I'm not surprised that Jacobin is against this, but donor-advised funds are an excellent vehicle for everyone involved, and is the opposite of wealth hoarding. It'd be great if we were less concerned about siphoning a few more tax dollars out of people and more concerned with addressing the things private charity feels the need to fill the gaps on.
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u/ShamPain413 22d ago
Very simple rules of thumb that are almost never wrong in any serious way:
If it's really charity then it doesn't need tax service.
If it needs tax service then it isn't really charity.
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u/Tom2Die 22d ago
and more concerned with addressing the things private charity feels the need to fill the gaps on.
What if we filled those gaps with public charity, perhaps by increasing tax revenue from those who already have shitloads of money?
It'd be great if we were less concerned about siphoning a few more tax dollars out of people
Oh, right, can't do that.
Obviously I'm being snarky and I promise I mean it in a jesting way. I just happened to read that sentence and the irony amused me greatly. It's also entirely possible I misunderstood precisely what you meant.
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u/ClockOfTheLongNow 22d ago
What if we filled those gaps with public charity, perhaps by increasing tax revenue from those who already have shitloads of money?
We don't, because the government's priorities are at odds with the desires of the people that fund it.
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u/booyaabooshaw 18d ago
I've been saying this for years. People donate huge amounts of money all the time but it never makes any difference. Cuz they aren't donating shit
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u/Freo_5434 18d ago
Surely private citizens have every right to do what they want (legally) with their Money .
Or not ?
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u/Present-Extent-8073 15d ago
I have juvenile rheumatoid arthritis. The aRThRItIS sOCieTYyyy... Has done ZERO... im so exhausted from a lifetime of NOONE ... NOT A SINGLE HEALTH INDUSTRY LICENSED PERSON TO THE ASSTD LIVING ROOM I LIVE IN STILL TREAT AND EXPECT ME TO be and act my looks and age.... I've been to the office... Everyone is average bodies average abilities... Not a single arthritic or disabled employee... I'm sorry for the rant... But nothing has been done to inform how HARROWING THE PAIN OF JUVENILE RHEUMATOID ARTHRITIS PRE BIOLOGICALS.
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u/no_fooling 22d ago
Need to stop tax credits/benefits for charitable donations.
You can donate to charity after you pay taxes not to avoid them.
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u/Secret-Demand-4707 21d ago
I think there is a group of people who prefer socialism etc that write these posts. Why should someone care what another does with their own money? It would be the same is I went to my neighbors after finding out they put extra money in savings asking them why they are saving their money. It's the same thing. The difference is that some people are pointing out the rich just because they are rich. If I ever become rich I would put my money away too. I think. A lot of rich people are putting their money into expensive art etc. I would too. People seem to forget we live in a capitalist country. This means that anyone can if they choose, start a business, and hopefully become wealthy. Or, you can choose to do nothing. Why should I be upset with people who through their own or their great grandparents, become wealthy? If you want the wealthy to not make more money then stop buying their goods and services. People still subscribe to Amazon everyday. Jeff Bezos and company did not force them. The consumer wanted what was being offered and willingly gave up money to acquire what they wanted. This means the owner of the company and investors will continue to make money from willing consumers. Therefore, these now rich people have the right to do with the money they earned from the transaction as they see fit.
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u/Sansa_Culotte_ 19d ago
Good point. Why should the government give tax breaks to charitable donations? Doesn't really make sense, does it.
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u/natener 20d ago
I'd argue that society is better off making rich people pay the tax and move the wealth to pay veterans, poor, sick and elderly, and fund education and school lunches, than giving the ultra wealthy another tax break, let alone allow them to fund their ideologies through charity.
Maybe then everyone could benefit from universal health care that is somehow too expensive of a proposition.
If you made a windfall of money by selling your business, that is one of the only times wealth is finally realized as taxable income before you die - and for people that already pay proportionately far less than average people, that is beyond unfair.
You could set the bar at a $1 million allowance for DAF if we are really concerned about the "average" person getting hurt by not having enough tax avoidance loopholes.
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u/kepholt 20d ago
We won’t pay dividends, just a massive wage to ourselves, we are a charity!
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u/Sansa_Culotte_ 19d ago
Hey now, I don't take a single dime from my fund. All the money goes to the people who work there, such as my wife, my kids, and my cousins.
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u/murphysclaw1 22d ago
all i see on truereddit on my homepage now is articles from jacobin, which is a really poor and biased source.
why does this keep happening?
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u/Gnasher279 21d ago
99% of the wealth is held by 1% of the population. Rich people help themselves whereas the poor help each other.
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u/StarKCaitlin 21d ago
It’s like the rich found a loophole to avoid taxes and still look like they’re giving back. While, real charities are out there struggling. There should be rules to make sure this money actually helps people instead of just sitting there making the rich richer
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u/Mandalorian-89 20d ago
Does anyone have a list of these funds? The people should know who they are
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u/Ornery-Ticket834 20d ago
Foundations of corporations and wealthy people are much more than simple tax avoidance schemes. They are vehicles for all kinds of goodies.
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u/Sansa_Culotte_ 19d ago
Foundations and Funds are two different types of tax-dodging vehicle. Foundations are indeed the billionaire's swiss army knife.
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u/Ornery-Ticket834 19d ago
Yes you are correct. I like the Swiss Army knife example. It’s perfect. Donor advised funds is just a method to fund right wing organizations. It ought to be outlawed or modified by law immediately.
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u/StOrm4uar 19d ago
I refuse to donate any money to any organization except the local humane society and homeless shelter. I hate going to place and they ask if I want to round up. No give me my 3 cents, I am not trying to give money that another corporation can claim a write off.
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u/ConsciousFood201 22d ago
No… you think…?
Real quick, what do you think Jeffrey Epstein’s claim to fame was? The underage women on the sex island? Really??
It’s the foundations created by billionaires, guys. The sex island is just cover. These billionaires took us to the cleaners with this racket.
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