A recent opinion piece by Randy Fox titled “Protect Elon Musk’s Donor-Advised Fund” outlines Musk’s 2021 transfer of Tesla’s $5.7 billion into a tax-advantaged financial vehicle donation fund (DAF). known as. Fox described the public allegations of Musk’s possible use of a tax loophole as “panic” and based on “cynicism.”
The article asked readers: “Does it really matter that a billionaire hasn’t disclosed the recipient of the second largest charitable gift in history?”
Yes. it happens. It really does.
The lack of transparency means that billions of dollars are not reaching their ultimate beneficiaries.
Let me set the stage from the perspective of a nonprofit finance leader.
Over the past decade, I’ve had extraordinary success raising over $350 million in capital for nonprofits, from foundations, banks, corporations, government agencies, and high-net-worth individuals.
I have not received donations from DAF even once. In my field of work people rarely attempt to contact DAF because they are treated as a dead end.
Let’s be clear: My “extraordinary success” is relative. That’s a drop in the $350 million bucket compared to $160 billion in charitable assets under management across all DAFs in 2020.
Here’s the difference:
While the money I raised for the non-profit was deployed to People and the Planet, DAF’s assets sit in a financial vehicle without any time obligation – at all – to deploy to actual charity.
Let’s cover the basics. Can you spot the design flaw?
A DAF is a private fund administered by a third party (known as DAF sponsors) and created for the purpose of managing charitable donations on behalf of an organization, family or individual. DAFs offer tax benefits of up to 60% of adjusted gross income, can hold funds indefinitely, and transfer financial assets can be tax-free. DAF tax benefit is provided to the donor on transfer of assets in financial vehicle.
Once transferred to the DAF, the asset cannot be taken back. While the donor DAF advises the sponsor about the deployment of funds, there is no time limit on when the transferred assets must be donated to the non-profit.
did you find fault?
Since there is no incentive or requirement for DAFs to make grants to nonprofits, financial assets are constrained at the DAF level.
Intentional or not, DAFs are often co-opted for tax avoidance rather than charitable purposes.
How will I know?
The assets of DAF are increasing.
Charitable assets under management across all DAFs totaled $159.83 billion in 2020, a 9% increase from 2019’s total of $145.49 billion.
If the DAF assets are increasing, it means that the transferred assets are sitting in the DAF instead of passing through to their principle recipients.
Tax avoidance DAFs particularly prevail because the DAF structure was designed to streamline donations through mission-minded managers with a strong network of non-profits who turn cash into a public good.
Instead, most DAF assets are held in commercial entities that offer DAF management as a complimentary service to traditional portfolio management services.
Returning to the initial article, Randy Fox writes: “If Musk’s Tesla shares are sitting in the DAF, and I believe they are, then the money has indeed been given. The DAFs are an outright gift to charity. Represent. Period.”
First, do authors ‘believe’ they are? Can I get a fact check?
Secondly, DAFs represent an outright gift to charity, in the same way that I can cash a check that has been lost in the mail.
The author speculates that the non-profit cannot digest large amounts of cash at once.
If Musk’s team needs help getting funding to nonprofits that may have an immediate effect, please contact me. I can put the entire amount in five phone calls.
Here are my immediate thoughts:
- Donate to the American Red Cross for Ukraine relief efforts.
- Establish a scholarship endowment at HBCU.
- Capitalize on U.S.-based community lenders who do appropriate financing in low-money neighborhoods.
- Bolster the Nature Conservancy’s mission is to address some of the most pressing environmental challenges.
- Contribute to Greenpeace’s fight to reduce toxic plastic waste in our oceans.
If Musk is concerned about his privacy, as the author implied, any nonprofit will be happy to accept these generous contributions on the condition that the donor remains anonymous.
“Does it really matter that a billionaire hasn’t disclosed the recipient of the second-largest charitable gift in history?”
Yes. it happens. It really does.
If we don’t ask for confirmation that the check was cashed, there are billions of dollars left in the DAF to avoid tax. Gift to charity is not completed yet.
After all, if DAFs are no longer spending their charitable income, what are they really waiting for?
Andrea Longton, CFA, is the founder of social justice investors and co-host Renegade Capital Podcast, you can follow andrea linkedin And Twitter,
