It's the big take from Bloomberg News and I Heart Radio. I'm West Gasova today. Why are billionaires parking piles of money intended for charity instead of giving it to charity? You know that old f Scott Fitzgerald expression, The rich are different from you and me. That might as well be the title of today's show. For several years, prominent billionaires have been joining the Giving pledge. That's where they publicly promised to give away. Some are all over their fortunes.
But unlike the rest of us, we drop a dollar in the jar right at check for charities we care about. The super rich do it differently. One way is by using a thing called a donor advised fund that lets them set aside money to give away without saying when they'll give it away or who's going to get it. You might ask why would they want to do this? Bloomberger reporters Noah Boo Hire, Sophie Alexander and Ben Steveman delve deep into the world of donor advised funds, and
they are here with answers. No, let's start with you. How exactly is using a donor advised fund different from giving an annual contribution to a charity at the end of the year. Yeah, it is, it is, and it isn't. One of the things that's so interesting is that you get the tax break up front, so when you're going to file your tax return, it's effectively the same thing. But the money is sitting there. It's it's there for charitable purposes. You can't pull it back, but it actually
hasn't made its way to a working charity yet. They can sit there indefinitely. And there's a variety of reasons why you might want to do that. There's tax reasons, of course, and that's the big one. There's also, you know, like family purposes, similar reasons to why people set up a private foundation. Is that you you want to get the family together and say, Okay, we're gonna start focusing
on these charitable causes. Let's talk about it. We have this money that's dedicated, but there is, like we've said, no deadline for one, that money actually has to go out to working charities like food banks, home letch shelters, etcetera. All right, so let's take this apart just a bit. So then we've heard private foundations, and we've heard donor advised funds. What are the difference between those two things.
A private foundation is a charity that's set up basically by one person, by one family to give their money away.
In practice, they're both pools of money yourmark for charity, but the private foundation, because of some controversies in the nineties sixties, basically there are much stricter rules on what a wealthy family can do with their private foundation, like what well they have to disclose what they do every year, where the money goes, and where's the money is coming from, and also what they're invested in, and they have very strict rules on where that money can go in terms
of can it be invested in a family business generally know and and also the key thing is they have to pay out basically five percent of their assets every year. So you can't just set these things up and let them sit The money that you've got the tax aduction for that money needs to go out to charity every year on a regular basis. What we're talking about in this story and what we've been doing a lot of reporting on is not just donor advised funds, but specifically
private foundations which have all these rules around them. Giving to donor advised funds, which don't have very many rules around them, and so what we're seeing is that it's not just the accumulation of money and donor advised funds, but the money that coming from private foundations going into donnor advised funds also seems to be rising. A big part of this reporting was going out and scraping hundreds of thousands of files that the i r S has
released publicly on the activities of private foundations. And every year, private foundations are required to put out a filing that lists the grants that they made. So what we did was, through the magic of computers, assemble a database of more than four million grants that private foundations have made in the past several years, and then we sifted through them to look for grants that were made specifically to the
major sponsors of donor advised funds. And then we added all of that up and found that more than four billion dollars has moved through this pipeline, which is a staggering amount of money. It's you know, private foundations by and large are giving to other things. This is a small niche activity for private foundations. But when you drilled down into the trull filings. You see that some private foundations are employing this as their main strategy for giving
away money or the only way that they're giving away money. Literally, a hundred of the dollars that is leaving the private foundation is ending up with a death. And that that four billion dollars is a conservative estimate because we're only looking at digital filings, and no, it could speak better to that. But for example, who was it Larry Page,
one of the co founders of Google. Right, he filed on paper, and so that's not included in this analysis, and if it had been, that would be what another half a billion dollars something like that, right, yeah, correct,
This is just the tip of the iceberg. And the fact of the matter is when these transfers happened, the paper trail and the transparency about where the money is going really dries up, and it requires the work of journalists and others to really dig into what's going on, which defies the intent of a law that Congress paths more than fifty years ago to provide some accountability around
how philanthropic dollars are spent. I would add that one of the concerns here is that this is going to become standard operating procedure for more and more wealthy families that have these foundations. They're busy, they don't have time. Let's just put the money in a daff and let it sit there. And this used to be something that was definitely frowned upon. Now it's become something that your advisor might tell you to do at the end of the year so that you make sure you follow the rules,
and you might not think about it. So it deserves some attention as something that really does bypass the spirit of the rules that we put in place when we give people text advantages for charitable giving. I suppose it's important to note that when we're talking about viotling the spirit. None of this is illegal. It doesn't violate any laws. Are actually doing what these things were set up to do, and all of it is legal. It's all legal. It's all above board. No one is us seeing anything other
than that. Yeah, So so he who's giving money into these funds, because it sounds like they're being used for our purpose. Sometimes that's not really about charity. Yeah, A variety of people use these funds. You know, Fidelity is the biggest provider of donor advised funds in the US,
and they really market themselves as for the everyman. So you know, their median account size is under twenty five thousand dollars, So you could just be an average Joe who is, you know, retired and looking to give away some money. But we also have a lot of billionaires
who use these things. In our reporting, we came across a lot of hedge fund billionaires because what we were looking at was specifically people sending money to donnor advised funds from private foundations, and so a lot of hedge fund managers set up private foundations and then they're able to invest in their own funds, and then to meet the five percent minimum, they send the money to a donor advice fund where they don't have any deadline, but
they meet the five percent requirement. So it's really just for people who are looking to get tax benefits. It's also for people who are looking to use technology to give away money more easily. And so if you have your own private foundation, it has to pay out five percent of a year, but you can then take that money instead and put it into a donor advised fund and tell them not to spend it. And therefore you just kind of keep your money exactly. You know, this
is unintentional. Really, the idea of them dates back decades and decades, but they really became popular when financial companies embraced the idea of offering these accounts and they became
a marketing thing. Basically, financial companies started marketing them to wealthy people, people with money, and that really started a flow of billions of dollars into them starting in the nineties and early two thousand's why were donor advised funds created in the first place, what was there original purpose.
One of the advantages of donor advised funds is that you can take a private investment that you own and you can put it in a donor advice fund, and then the donor advice fund will sell it and then that money can go to charity. You might not be able to give a stock or a piece of a private business or a piece of real estate to your local food bank, for example. They're not going to know what to do with that asset. So there are some things like that about donor advice funds that just make
it more convenient to give money away. So that's sort of like the positive argument I guess for donor advice funds and why they should exist. But again, there's these other issues with donor advised funds that have really created a lot of controversy. So now we have a pretty good understanding of what donor advice fund is. In your story, you write about how some of the best known investors from some prominent names are using these. No, what are some of the examples of the big names who are
taking advantage of this investment vehicle. We documented that people like Elon Musk, the founders of Google, hedge fund, billionaires, people like Robert Mercer have employed daffs as a way of meeting their required giving from their private foundations, but also on some level of securing what they're doing with their these philanthropic dollars. Well, let's use Elon Musk as an example. He's in the news everywhere, so might as well talk about him. Amore, How has he used these
donor advised funds? Yeah, So what you see when you look at the tax filings for the Musk Foundation, which you can get from the I R S or from his his folks, is he has something. Sophie correct me if I'm wrong, but about three billion dollars amassed in
the Musk Foundation. It's probably down quite a bit because of Tesla, but yes, and if you look over the past several years, about three quarters of the money that the foundation has given out has ended up at two sponsors of donor advised fund the one that was set up by Vanguard and the one that was set up by Fidelity and one the money makes it to those dats, we really have very very little idea whether it's even going onto a working charity and what it's doing from there.
It's it's sort of a black box. That's what I think critics of daff's would point out as one of the big issues with these funds. And you know, the little that we do know about Musk's giving has come
up in really weird forums. We know from the defamation trial between Amber Heard and Johnny Depp that at least some of the money that Musk put into his Vanguard DAFF had made its way to the a c l U but that was only because Musk had been dating Amber Heard and during the trial the representative for the a c l U was on the stand and they were trying to figure out whether a pledged donation had actually made its way from Amber Heard to the a C l U, and it came out that some of
that money came from Musk's Vanguard DAFF. I mean, that's a very conval did story to try and figure out where one of the world's richest people is spreading his charitable dollars, and and that's a consequence of this black box structure that he's employing to give away money. I
just really quickly want to add on Elon Musk. You know, we can't guess what his intentions are with setting up a private foundation that gives most of its money to a donor advised fund, but in talking to you know, people who do research in this space, it seems like one of the reasons that we see this happening over and over again is that someone like Elon Musk sets up a foundation twenty years ago, he you know, may have some philanthropic intentions, doesn't really know exactly what he
wants to do yet, and then he becomes really busy running several companies and he doesn't have the time to actually commit himself to philanthropy. So in the meantime, that money can make its way to a DAFF and then something that we've also talked about in the story is that as that money piles up in a daff people sort of become paralyzed and it might just sit there longer and longer the more you have in it, because it's like, oh my God, look at all this money
that I have to spend down. My conversation with Sophie, Ben and Noah continues after the break. So there's Ellen Musk. Who's another person who uses these funds. Yeah. Another one we looked at was Robert Mercer, the former co CEO
of Renaissance Technologies and prolific donor to Republican causes. He and his family attracted a lot of scrutiny after Donald Trump was elected for where their charitable dollars were going from the Mercer Family Foundation, and what you see in the tax filings is that, I believe it was two thousand and eighteen they started giving the lion share of their money to a daft sponsor called Donors Trust. They
called themselves the Community Foundation for Liberty. They've attracted some people with moreservative ideas, and you basically ended up in a situation where the Mercer Family Foundation, which had been getting all this scrutiny for these donations they were making
out of their private foundation. Suddenly, you know, we just don't know where the money is going because the bulk of it ends up at donor's trust, and then it's hard to tell once it ends up at donor's trust where or whether the mercers are giving out that money.
So it's not just that you don't know necessarily when they're giving it out, just trying to find out where it ultimately goes and whether it's really going to charity, if they ever found instances where money was dispersed to places where it shouldn't have been the problem is that when you give to a Fidelity staff, your money is for public reporting purposes, is commingled with all the other donors. It's like a giant pool of fifty billion dollars at
this point, you just can't tell. So you had mentioned earlier that Fidelity other financial institutions has set up these funds have an incentive to keep it there. How do they make money off of the money that's sitting in these funds. They're basically two sources of revenue coming in
the door. You've got investment fees. So a lot of times the donor advice funds sponsor the Fidelity or Vanguard or Schwab, they will help you allocate the money and your DAFF to mutual funds or various other investment products that they earn investment fees on the big sponsors. They tend to be pretty low cost things. But you know, we're talking about hundreds of billions and dollars of assets spread across daffs at this point, so it's real money.
The other source of revenue for the daft sponsors are administrative fees, and this is basically the cost of running the entity, the charitable entity that that houses all the daffs. So they charged essentially management fee the way they would for other kinds of funds. Correct and again for the big national sponsors like Fidelity and Vanguard and Schwab, these
tend to be relatively low. It's part of the reason that daffs are so popular because these financial services firms have really made it cost effective for people to set these things up. The benefit for the financial services firms as they've aggregated so many dollars at this point that it's real money. Now. If you talk with the big sponsors, they'll say that they're offering these services at cost, or at least what you would have to pay to get
these services in the private market. And I will just add here like for some people, you know, if you had a smaller amount of money to give away, setting up and administering a private foundation is not free. So for certain size wealth, if you use a DAFT as intended, and you're distributing your money regularly, a dat can actually be a more cost effective way to give I was just gonna add it on top of the fees that they're actually collecting. It's also a really good relationship building tool.
When you're setting up a donor advise fund with a place for like Fidelity, you now have a relationship with that financial institution and they can leverage that. Like financial advisors are obsessed with the next generation because often they're working with the patriarch and matriarch of a family who are aging, and they want to make sure that they have a good relationship with the next generation and the
grandkids as well. And philanthropy becomes part of that strategy, and there's a lot of discussion about that among the advisors. So if I'm a billionaire and I want to meet the requirements of giving away the money from my foundation. Is there anything I'm gaining other than meeting that requirement and not having to give that money away immediately? Are their tax benefits for giving it to a donor advice
fund as opposed to just dispersing it. Basically, the main motives are either you don't want to disclose what you're doing, or you don't have a plan for what you're doing. So once you put your money in the donor advice fund, can you ever pull it out? Or is it in there for good? No, it's in there for good. You
can't take it back. Ben, Are we seeing any movement at all in Congress by the I R S other agencies that oversee financial institutions to maybe get a little more transparency about how this money is being spent or not spent. A couple of years ago, a coalition kind of an odd coalition of billionaires and academics came together and proposed a law that would end this practice. Their idea was, let's accelerate charitable giving by putting some new
rules on the on these things. And that was actually taken up by Charles Grassley, the Iowa Republican Senator and Angus King, a senator from Maine who is an independent but caucuses with Democrats, and they proposed the law that was introduced in the House as well, and it would basically mean that if you put money in a DAFF and got an upfront tax break, you would have fifteen years to distribute that money. And that law has sort of been sitting in the past Congress, uh and not
going very far. It did spark a lot of pushback from the daft industry, from community foundations that offer these dafts as well, And we'll see what happens next. The Biden administration has also proposed a rule change that would prevent foundations from using daffs in the way that we've been talking about. Ultimately, the comprehensive solution is a law, but the I R s could maybe tweak the rules
a little bit and change disclosure rules a little bit. No, when you look down the road, where do you see this going? Do you think that just billions and billions more dollars that can keep piling up in these funds or at some point the damn is going to bust and that money is going to be called upon to be released. Well, I mean, if you look at the data The trend is definitely for more and more money
to pile up. When we published our first story on this, it was I think it was a hundred and sixty billion dollars across all dafts in the US, and that climbed at two and thirty rebellion. For a lot of donors, it's just a very very convenient structure to organize their giving. But yeah, overall, I think the trend very much is that we're going to see ever greater sums go into daffs. Noah bu Hire, Sophia Alexander, Ben, Steve Berman, thanks so much for talking to me, Thanks for having us, Thanks,
thank you when we come back. What does all this stockpiled cash mean for the charities who are waiting for it? A lot of charities and nonprofits of all kinds depend to one degree or another on contributions, So what does the rise of donor advised funds mean for the people on the receiving end. One person who definitely knows is jan massa Oka. She's the CEO of the California Association of Nonprofits and she joins me now from San Francisco. Jan massa Oka, thanks so much for talking to me today.
Thank you, Jim. Can you tell me first, what does the California Association of Nonprofits do well? Count nonprofits? We say, for short, is a chamber of commerce for nonprofit organizations in California. There are ninety two thousand registered nonprofit organizations, but two thirds of them are all volunteer organizations, so there are twenty two thousand with staff. But we have just under ten thousand members, including both all volunteer and
staffed organizations. So we take on regulatory, economic issues, the kinds of things that affect all nonprofits, just not one segment of them. And what kind of nonprofits does your organization represent well? We like to say we represent as many as can or as many kinds. I would say that kind of the best part of our membership our health and human service organizations that are community based, in
community oriented. We certainly have a large number of foundations, schools, universities, etcetera, arts organizations, theaters, but I would say kind of the heart of our member ship with the community based health and human services. And so I imagine a lot of
your members depend to one degree or another on philanthropic contributions. Well, you know, it's interesting if you look at the total income of California's nonprofit community, less than five percent of it comes from foundations and individuals, so they get a lot of attention, but it's not where most of our money comes from. Actually, we're talking today a lot about donor advised funds and the effect that these funds have had on how much money is actually going from different philanthropies,
different organizations into charitable organizations and nonprofits. Have you seen an effect from the rise in the use of these donor advised funds in the amount of money that's just
flowing out. Well, let me tell you a story that tells you a little bit about why this issue is such an emotional important one to our First one of our members is an African American woman who learned the hard way that when you get released from prison, you can't get your children back until you have a permanent address. And of course, if you are such a woman, you feel like you can't really do anything until you have
your children back. So, after she got her life back together, she started a nonprofit to help women have a permanent address so that they can be housed for a period of time so that they can get their children back as soon as possible, and over the last twenty years she scraped and saved and worked hard so that she now has two shelters that have women and children able to stay there. She told me that within fifty miles of her there are two organizations that have more than
one billion dollars in donor advice fund assets. But there's no access to any of those donor advice funds, and so there might as well be as well spargo. They're held up in the checking accounts, and so she has no access to them, and it's infuriating. Frankly, if you were in that kind of situation and these big amounts of foundation dollars for which people have gotten tax deductions were three thousand miles away, you might not feel it as keenly as you do when they're right next door
to you. We also know that the Attorney General of California has released a very important report showing more about donor advice funds, and one of the things that points
out is that giving overall is actually very flat. We're not seeing increases in giving in the last several years, but the amount of money that goes to donor advised funds is now over ten percent of total giving, So that means that there's actually less money that's going directly to nonprofits that are operational, and how has that affected the ability of nonprofits to function well? For some nonprofits it's the majority of the even of their funding, but overall,
colanthropic dollars are under five of nonprofit income. I think that one of the things that we've seen happen is that for a long time, the way that individual well giving has worked for nonprofits is that you have small donors and you gradually work with them so that they increase their giving over time. And what we're seeing right now where I've heard from so many nonprofit fundraising directors,
is that they've lost their middle class of donors. Right They've got still got the small donors that are giving ten fifteen dollars, and they have mega donors now that might be giving a million dollars or two million dollars, but they've lost their middle set of donors. I believe that part of this is kind of the shrinking of the American middle class in general, but it's also really an indication I think of how it's turning nonprofit attention
in general to seeking donations from mega donors. And not from the main streams of the communities in which they're embedded. What kind of nonprofits are most affected by fewer dollars coming out of the donor advice funds that once may have flowed into their coffers. They depends on what you mean by affected. I think that you know because foundations are the majority of funding, for example, and think tanks. Think tanks are less likely to get some of that money.
But I think that where people feel it the most is people that are working with vulnerable communities. When you're working with children with disabilities, you know, elder people that are in crisis. These kinds of people really feel it in their guts and their hearts when they don't have as much money as they need to to be able to serve those kinds of people. Do you see any upside to donor advice funds? There's anything good about them from your perspective? Well, we yes, we support the idea
of donor advice funds. The core idea of a donor advice fund is that I could put let's say ten million dollars into a donor advice fund today and I could get a tax break immediately, but I will only have to give away that money to an active nonprofit sometime between now and infinity. So we think if people are doing it relatively quickly, that's a good idea, but we think there should be a legal limit that's a
little bit closer than infinity. Our number one concern is about transparency, because we can't identify these problems given how secretive, it's just a wrap of secrecy around them. And that's one of the reasons we have co sponsored legislation in California to bring some transparency to these issues. We know most owner advised funds people are great. They mean, well, they want to put off the giving till next year when they have a little bit more time to think
about it, for example. But we also feel like, well, just because almost nobody murders anybody, it doesn't mean we shouldn't have laws against murder. You mentioned a bill that you are pressing to have passed. What exactly would it do well, right now, we're in between legislative sessions, so we don't have a bill right now, but we're expecting
to in January. We're working with Assembly Member Buffy Wicks, who's very committed to this issue and very concerned about seeing that people in her district are getting the funds that they need. Jan Mos Okay, thanks so much for taking the time to talk to me today. Thank you. You can read the story no A Boo Hire, Sophie Alexander and Ben Steve Berman wrote about Toner advice funds. I'm Bloomberg dot com. Thanks for listening to us here at The Big Take. It's the daily podcast from Bloomberg
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