The American economic landscape is undergoing an enormous shift. During the next few decades, approximately $30 trillion in Baby Boomer assets will transfer to their Gen X and millennial children and grandchildren. Will these heirs contribute a significant portion of these dollars to their local communities? Not if the philanthropic option of donor-advised funds (DAFs) retains its current form.

DAFs are the fastest-growing vehicle for Americans to set aside billions of dollars for supposedly charitable use. Currently, there are an estimated 285,000 DAFs with assets totaling around $85 billion.

DAFs are popular because they are easy to use and appealing: A donor establishes a fund at a commercial national charity (such as Fidelity Charitable, Vanguard Charitable, or Schwab Charitable), donates cash or an appreciated asset such as stock or real estate to that fund, and takes an immediate tax deduction equal to the amount contributed. The commercial national charity then invests the liquated asset and awards grants to nonprofits at the recommendation of the donor. However, neither donors nor commercial national charities have any obligation to distribute any of the money from DAFs to nonprofits. (Note: Private foundations, which typically are created by a corporation, individual, or family such as Bill and Melinda Gates, rarely establish DAFs.)

According to the National Philanthropic Trust’s 2017 Donor-Advised Fund Report, total charitable assets in DAFs at commercial national charities grew by 134 percent (from $19.06 billion to $44.68 billion) between 2012 and 2016. During that same period, the annual payout rate from these funds decreased by 3.4 percent (from 24.1 to 20.7 percent). In 2016, more than $36 billion (approximately 82 percent of DAF assets) were not awarded to nonprofits.

Read the full article about the problem with donor-advised Funds by Mark Hurtubise at Stanford Social Innovation Review.