Night of the Living DAF: How Groundswell is Raising Zombie Philanthropy From the Dead

  • Groundswell
  • October 21, 2021

No one likes zombies. They’re noisy. They’re disgusting. Worst of all, they try to eat your brain.

But perhaps the spookiest thing about them? They’re mindless. Zombies are automatons who amble along without thinking. Left to their own devices, they would go on like that, mindlessly, forever. Never changing, never helping, never improving.

It is this critique of the undead that gets levelled at a form of charity dubbed zombie philanthropy. In this critique, the drivers of zombie philanthropy are Donor-Advised Funds, or DAFs. To quote The Washington Post:

This is problematic. We’re in a world where there is no time to waste. There are too many crises facing our country and global community and it serves no one to have money sitting on the sidelines. At Groundswell we’re going to change that by building a platform that will better facilitate these funds and empower donors to make an impact quickly.

WTF is a DAF and who contributes to them?!

DAFs 101

A Donor Advised Fund allows donors to put all of their charitable dollars into one single fund, receive an immediate tax deduction, grow those assets over time, and distribute assets to nonprofits of their choice at any given time. It was established in the 1930’s to handle charitable donor-advised fund contributions on behalf of organizations, private individuals, and families. Since then, DAFs have been primarily utilized by the ultra-wealthy. According to the 2020 Donor-Advised Fund Report, grants to qualified organizations from DAF accounts totaled $27.37 billion in 2019, up 15.4% from $23.72 billion in 2018. But considering there are over $140 billion in total assets squirreled away in DAFs, $27 billion is merely a fraction of the impact potential they represent.

Why Do DAFs (Sometimes) Become Zombies?

Donor Advised Funds are popular due to their ease of use. Donors typically struggle with deciding where to direct their philanthropic contributions, especially when large sums of low-value assets are contributed. Managing several beneficiaries while meeting a deadline might be difficult. As a result, one-stop-shop giving simplifies the philanthropic process.

Why have DAFs become the target of “zombie philanthropy” accusations? The critiques typically go like this:

  • Unlike with private foundations, there is no requirement for minimum distributions from Donor Advised Funds. As a result, investors routinely deposit significant amounts of equity or cash in those accounts with no need to distribute them right away. This means that a DAF’s capital can sit static for years or decades, and never actually reach a nonprofit.
  • This is particularly worrisome at a time when nonprofits need funds urgently, not in a distant future.
  • Some individuals use DAFs primarily for income tax reductions, balancing their tax bill with their giving, so that the upside, like capital gains, is neutralized. Others use DAFs to pass on money to their offspring, once again with minimal taxes.

With DAFs, people can sidestep learning about the best causes in place of simply dumping the money in a pot on the advice of someone else.

We recognize these critiques. Any tax instrument can be manipulated depending on a user’s intentions (we’re looking at you, Peter Thiel). However, we don’t believe DAFs are inherently evil and are instead breathing new life into the zombie philanthropy model.

Groundswell reaps the benefits of DAFs without the downsides. And we believe that this approach can be scaled to reach any prospective donor, not just the ultra-rich.

How Groundswell is Raising Zombie Philanthropy From the Dead

Groundswell is built differently.

Legacy DAF providers also happen to be massive asset managers. No wonder their platforms are designed to keep money in the DAF, and not move it out to charity. In fact, it’s in their best interest for it to play out that way.

However, Groundswell is built to move money as efficiently as possible out of the system and into the hands of charities.

The objectives of our platform are aligned directly with the goals of charities – including the goal of disbursing as much money as possible into the community. That’s probably because we were founded by a former nonprofit executive, a key difference in Groundswell vs. the competition.

We have no beef with DAFs and not every DAF fund is a zombie. The fact is, when funds are transferred to a DAF, they will eventually finance a program sponsored by the donor, though it may be slow and delayed funding means delayed impact.

As we already mentioned, we believe that Donor Advised Funds are not inherently evil – even if they are exploited by a large number of ultra-wealthy individuals and fail to generate as much good as intended. In principle, DAFs can be powerful but, like everything else, they must evolve.

That’s why Groundswell is supportive of recent talks aimed at reforming Donor Advised Funds to include, among other things, a minimum annual distribution. DAFs, built and leveraged appropriately, can bring massive efficiencies to the nonprofit sector and the giving of ordinary Americans.

So instead of allowing these legacy Donor Advised Funds to shuffle around mindlessly like zombies, let’s build an alternative like Groundswell that breathes life back into the Donor Advised Fund and democratizes philanthropy for the 99%.

  • Groundswell
  • October 21, 2021