The 411 on Donor Advised Funds

If you've never heard of donor-advised funds (DAF), check out my blog post entitled Donor-Advised Funds 101, which goes over the concept of DAF and how donors use these funds to make gifts to non-profit organizations.

This post will take a look at how these funds have grown over the past year. They are becoming an increasingly popular giving vehicle, and their growth shows no signs of stopping.

The figures used in this post are from the National Philanthropic Trust’s 2018 DAF Report unless otherwise cited.

More Funds. More Cash.

The number of individual DAF grew from 289,478 in 2016 to 463,622 at the end of 2017.

The amount of assets held in DAF increased to $110 billion in 2017, a 24% increase from 2016. This is partly due to the massive gains in the stock market, and partly due to increased contributions from donors.

There was uncertainty around the future tax laws at the end of 2017, so many donors took charitable deductions prior to the passage of the Tax Cuts and Jobs Act on December 22. The standard deduction nearly doubled under this act, incentivizing many donors to “bunch” their donations in one tax year.

The average fund size decreased from $298,628 to $237,280, reflecting the popularity of funds amongst donors of lower giving capacities.

 

Payout Rate Remains Stable

The payout rate measures the total percentage of funds distributed from DAF to non-profit organizations. The good news for non-profits is grants made from DAF has hovered around 20% since their inception, and rose to 22% in 2017.

Non-profit organizations received $19 billion in grants, compared to $16 billion in 2016.

Source: National Philanthropic Trust

 

Pledges Eligible to be paid

Donors were previously not eligible to make pledge payments through a DAF. The IRS ruled in December 2017 that DAF grants are eligible to pay pledges, provided the distribution meets certain criteria.  

 

Skepticism Continues

Many, including myself, remain unconvinced about the benefits of donor-advised funds to our sector. The purpose of the charitable tax deduction is to incentivize individuals to give money to non-profit organizations.

By giving to a DAF, donors are essentially taking a tax deduction for their money to sit in an investment account. There is currently no requirement for these funds to be paid out, meaning the funds could sit in a DAF in perpetuity while massively profitable financial institutions extract management fees. These funds should be invested in our sector, providing benefits and bettering the communities we serve.

 

Resources:

What is a Donor Advised Fund? (National Philanthropic Trust)

2018 DAF Report (National Philanthropic Trust)

Donor Advised Funds (IRS)

 

DAF Criticism:

Philanthropy’s Dark Money (Nonprofit Chronicles)

The 'Black Hole' That Sucks Up Silicon Valley's Money (The Atlantic)

 


B elmore


Brian Elmore
brian@ynpnchicago.org
Financial Analyst, Ann & Robert H. Lurie Children’s Hospital of Chicago Foundation
Brian is a Financial Analyst at the Ann & Robert H. Lurie Children’s Hospital of Chicago Foundation. He manages the financial framework around philanthropic funding of pediatric medical research initiatives. Prior to Lurie Children’s, Brian worked at PwC, performing financial statement audits of insurance and financial service companies. He is originally from the Philadelphia area, graduated from the University of Pittsburgh, and is a licensed CPA in the State of Illinois. Since moving to Chicago in 2013, he has become active in advocating for legislative transparency and social justice in city and state politics. Brian is a year-round cyclist, loyal supporter of the Philadelphia Phillies and Flyers, and frequenter of live music shows across this fine city.