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In defense of Elon Musk’s donor-advised fund

We recently learned that Elon Musk donated $5.7 billion worth of Tesla shares at the end of 2021. It is considered the second largest charitable gift in history. However, much of the media coverage of Musk’s generosity has been skeptical and accusatory. Instead of talking about his generosity, we hear nothing but concern about where the gift went, why it should be disclosed, and why Musk is “tampering” by donating to his donor-advising fund (DAF). How can use. It’s unfortunate that we become so upset that we don’t recognize the magnitude of Musk’s gift and instead focus on all of its flaws.

Musk is a notorious provocateur who has become a master of both traditional media and social media. Nevertheless, he has taken great pains to keep his enormous gift in tatters, and perhaps this is what is prompting the speculation. Cynics will tell you that he put Tesla shares in his DAF so that he can get a huge tax deduction without actually giving the money to the charity. Not true, but I can see where the cynicism stems from.

Back in 2015, Facebook founder, Mark Zuckerberg and his wife Priscilla Chan announced to donate 99% of their wealth to charity. They introduced the Chan-Zuckerberg Initiative (CZI) to great fanfare and most people, including members of the press, ignored the fact that the couple didn’t actually give anything away. In fact, Chan-Zuckerberg placed Facebook shares in a limited liability company (LLC) and some still use LLCs today to make grants. But technically, they haven’t made a perfect gift yet.

DAFs are very different. If Musk’s Tesla shares are sitting in the DAF, and I believe they are, then the money has really been given. DAFs represent an absolute gift to charity. Period.

Benefits of DAF

The fact that Musk’s Tesla shares have yet to be distributed to end-user charities is a different matter. If you think about it their approach makes sense. No conscientious donor could efficiently disburse $5.7 billion in a short amount of time. Giving so much money to a single charity would break the infrastructure of even the most well-run charity in the world. It would be foolish to think otherwise. Also, DAFs allow anonymity if desired, so we may never know how the money is distributed. Clearly, anonymity makes it easier for the charity (or charity) to do its job without outside interference.

Part of the charm of the DAF structure is that it allows people to make sizable gifts and then distribute the money at a comfortable level, with enough time to do research, consider alternatives, review missions. and apply to the financial statements of potential recipients or any other evaluation criteria they desire. Jeff Bezos’ ex-wife Mackenzie Scott used to announce how her philanthropy was allocated. The first $2.7 billion he gave was widely publicized. Then, when she did, she changed her methodology and didn’t identify the recipients or amounts. I think there are two reasons for this:

  1. Scott focused so much on her own giving that she was overwhelmed by grant requests and offers from thousands of charitable organizations.
  2. The charities that received Scott’s funding were probably swamped with new requests for services. Organizations are often unable to obtain large, sudden investments of assets. They have neither the infrastructure, nor the internal mechanisms, nor controls to deal with the growth that so much affects their balance sheets.

One problem with making large, rapid disbursements to the nonprofit sector is that there is a strong possibility that the effort will fail. Remember when CZI dedicated $200 million to the Newark, NJ public school system around 2010? CZI’s well-intentioned gift is now considered a massive failure of philanthropy because the Newark school system was not equipped to handle that much money in such a short period of time.

Shouldn’t Musk be allowed to take the time needed to figure out how to deploy a gift 25 times the size given by CZI to Newark public schools?

lack of disclosure

Additional criticism is the lack of disclosure of where the money has gone or is going. Musk is usually very public about his gifts, and he has tweeted openly about his recent donation of Starlink satellite service to war-torn Ukraine, volcano-ravaged Tonga and other internet-deprived regions of the world.

But so far, Musk has remained silent about who will receive the roughly $6 billion shares of Tesla sitting in his DAF. Maybe he hasn’t decided yet. For any given of Musk’s net worth, $5.7 billion is a good chunk of change. Why does he need to be told that he cares? Some argue that the gift would be in the public interest because it is so large and could “influence public policy.” Doesn’t he already do this?

In Judaism, the highest form of giving is an anonymous gift. Musk describes himself as an atheist or agnostic, but I believe he also wants to quietly give in for a while and see what happens.

a private matter

In the world’s most charitable country, where many of the biggest charities give lavish gifts, it seems we can critique massive philanthropy when so many are in need. If I had that kind of money to give, I wouldn’t tell anyone where it’s going. If you have clients who are considering giving substantial gifts to the causes and organizations most important to them, don’t let the fear of public scrutiny distract them. DAFs are one of several smart technologies they can use to maintain their privacy so that they can maximize the amount of good their assets can offer.

Randy A Fox,CFP, AEP Is Tea founder ofTwo Hawks Consulting LLC,He is a nationally known wealth strategist, philanthropic wealth planner, educator and speaker.

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