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There is often a long gap between when donors receive a tax deduction and when that money is employed for its charitable purpose. I think this hoarding of resources is inefficient and counter to the spirit of the rules. Two policy tweaks will get that money working sooner. 1/11
By law, foundations must spend 5% of their assets each year. However, many boards view this 5% as the default spend. There is deference from both donors and boards to preserving (and growing) the endowment for the future. 2/11
Second, donor advised funds have amassed huge sums ($110 bln) in recent years. DAFs get most of the benefits of private foundations but are not subject to any annual minimum distribution (though sometimes sponsors require an occasional token distribution). 3/11
Closing the gap between receipt of tax deduction and putting the money to work will improve efficiency. First, there will be plenty of rich people in the future to deal with future problems. This generation of funders should address this generation’s problems. 4/11
Governance from one’s grave is full of pitfalls. Designing a legacy foundation faces challenge of either setting the mission too narrow and risk trying to solve yesterday’s problems in the future, or too broad and risk mission drift away from donor intent by future boards. 5/11
One role of philanthropy is to be willing to fund riskier ventures than government and private sector are willing to try, but the longer a foundation operates after donors’ death, the more bureaucratic and risk-adverse it tends to get. 6/11
Large DAF accounts often are distributed upon the donor’s death according to a will. But usually only nonprofits with existing endowments are set up to take large one-time checks at a random point in the future. 7/11
This biases contributions to large organizations (hospitals, colleges, arts) that are often already well-funded at the expense of smaller charities that need annual operating revenue. 8/11
The fixes are easy. First, increase the minimum spend for foundations from 5% to 7%. Second, make this minimum annual spend apply to each donor advised fund account. 9/11
These two fixes will dramatically increase the money distributed to the nonprofit sector (rough estimate of $20 billion a year) and address some of the valid criticism that donors are receiving. 10/11
Besides, we’ll eventually have the singularity and either the machines will have solved all of our problems or they’ll have conquered us humans, so we don’t need foundation resources in the very long term anyways. 🙂11/11
