In the past decade, during the rise of social media and the increasing polarization in America, family offices and wealthy individuals have turned to donor-advised funds (DAFs) and private foundations, which make it easier to make anonymous gifts to charity.
Grants to charitable organizations from DAFs — which allow donors to set up a named fund and make contributions while receiving immediate tax deductions — jumped 9% from 2021 to 2022, reaching $52.16 billion, which is more than the amount that goes directly to charities. High-profile philanthropists using DAFs include Bill Gates, Mark Zuckerberg and Priscilla Chan, Ray Dalio and Jack Ma.
In higher education, where donors are typically happy to be recognized with an endowed chair or a building named after them, there was a spurt of anonymous gifts last year to schools such as McPherson College, Montefiore Einstein’s College of Medicine and the University of Kansas.
Growing polarization and the rise of cancel culture have heightened concerns about donating to causes at the center of cultural conflicts. Following the U.S. Supreme Court's decision to overturn Roe v. Wade, for instance, the Center for Reproductive Rights experienced a surge in anonymous donations.
The great debate
Such gifts and the popularity of DAFs have spurred a debate over donor anonymity, with supporters claiming that it protects the privacy of individuals and opponents arguing that it cloaks controversial gifts and even inhibits democracy. Thirty-one states — including California, New York and Virginia — are considering legislation that requires nonprofits to disclose their donors and donations made through DAFs through so-called “original source” donor disclosure.
The prospect of required disclosure and increased regulatory scrutiny concerns some nonprofits — such as the conservative American Legislative Exchange Council, which recently opined that increased donor disclosure requirements will “intimidate individuals from supporting causes they believe in, out of fear of harassment.”
Donors cite fear of public scrutiny as one of the top 10 barriers to giving money to charity, according to a recent report from the nonprofit consultancy Arabella Advisers and the Bill & Melinda Gates Foundation. “In a climate where there is a lot of judgment around what are considered polarizing issues and judgment around donor approaches — such as trust-based philanthropy or diversity, equity and inclusion (DEI) donors — that can shut donors down,” said Betsy Erickson, head of family and individual services at Washington-based Arabella Advisors. “DAFs allow people to experiment and go public when they want to and be private if they prefer,” Erickson said, sharing the experience of a client who told her: “I give to the Catholic Church, but parents at my kids’ progressive school might not be happy.”
But Erickson thinks that it’s hyperbolic to claim that increased disclosure would dampen giving by the wealthy. “It might impact small-time donors to do the general work of supporting their local charities or religious institutions,” she said. “But if you’re a high-net-worth donor who cares about AI [artificial intelligence] policy, you’re going to find a way to do it.”
Family office members and wealthy donors have “layers of vehicles that allow for anonymity,” Erickson said.
In addition, she said, secrecy can allow wealthy donors to have undue influence without facing any accountability. “When wealthy donors speak loudly in the public square,” Erickson said, “it is fair for citizens to want to know who they are.”
In some cases, the recipient organizations themselves are the ones demanding greater disclosure of donors’ names. Erickson said that when she consulted on a donation by Fidelity Charitable, the grantee organization “needed the source name of that wealth,” which was a private foundation.
“That was pretty unprecedented,” Erickson said, “but it was an issue for an organization that was saying, ‘We need this for us to do our work, which is related to transparency.’ They wouldn’t accept the money without that.”
Reality check
The reality is that only a slim number of grants made by DAFs are made anonymously — less than 4% of grants, according to a DAF Research Collaborative report this year. Larger donations, however, are more likely to be made anonymously.
“Most donors are proud to make a philanthropic gift, a charitable contribution,” said Elizabeth Dale, the Frey Foundation Chair for Family Philanthropy at the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University in Grand Rapids, Michigan. “We know from research that being named and being public about one’s gift encourages other donors. There’s a much more positive outcome from being named as a donor than the negative.”
And despite some high-profile anonymous donations, the trend is actually in the opposite direction. About 9% of gifts of $1 million or more were made anonymously over the past decade, a 2-percentage-point decline from the previous 10 years, according to the Chronicle of Philanthropy’s database of large charitable gifts.
“I don’t think a new regulation or legislation around DAFs is going to have a drastic impact,” Dale said. “So much of American society is based on a philanthropic impulse, and we believe in private investments for the public good. So while there might be conversation around new rules, there’s also a conversation about wanting to support charitable giving and not wanting that to go away. We have to remember that balance of both sides.”
This story has been revised