The Tax Prof Blog reports on criticisms of donor advised funds by Lewis B. Cullman, businessman and philanthropist. The blog post notes the following, which is taken from Mr. Cullman’s book, Can’t Take It With You: The Art of Making and Giving Money:

At ninety-five, as a businessman and philanthropist, I want to call attention to little-known ploys in US philanthropy that rob our society of hundreds of millions of dollars earmarked for important charitable causes—leaving money stashed away in financial institutions and doing no good for anyone except money managers and other financial intermediaries.

In the past twenty years, I’ve given away close to $500 million of my own money. … I saw how private foundations were able to take unfair advantages of the charitable deduction. … But now I want to complain about a newer wrinkle that makes me even more indignant, one I deem “philanthropic gamesmanship.”

The more aggressive game in philanthropy I have in mind, one with a soothing but misleading name, is called Donor-Advised Funds DAFs. Back in 1991, the Boston-based Fidelity Investments applied to the Brooklyn IRS and got a ruling that drastically changed the tax landscape governing charitable donations. Donors get the same tax benefits when they give to a DAF that they would get by contributing to a museum, soup kitchen, university, or any other federally accepted charity. But rather than having the gift made directly to a charity, the funds can simply sit in the account awaiting instructions from the donor. If the donor never gets around to making distributions, they stay in the account earning substantial fees for investment managers. Recently, mutual fund management companies such as Fidelity, Vanguard, and Charles Schwab have set up separate charity accounts to compete for funds.

via TaxProf Blog: Its Time to End the Philanthropic Gamesmanship of Donor-Advised Funds.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.