Donor-advised funds are continuing to grow while enjoying substantial tax deductions for charitable giving, even as many contributions go to other DAFs and private foundations instead of actual charities, according to a new report.
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National sponsor assets have grown at by far the fastest pace, increasing 92% from 2020 to 2023. (National sponsors are those with no specific geographic or cause-based mission, such as Fidelity Charitable, the National Philanthropic Trust and the American Endowment Foundation.) While they represent only 3% of DAF sponsors, national sponsors held 70% of all DAF assets, took in 73% of all DAF contributions, and gave out 61% of all DAF grant dollars in 2023.
The median DAF account size across all sponsors was $135,086 in 2023. National sponsors had the largest accounts, at $390,910. Donation processor accounts were by far the smallest, at $305. (Donation sponsors administer mass-scale contributions, such as workplace giving, payroll deduction or crowdfunding programs. Some examples include PayPal Charitable Giving Fund, Network for Good and American Online Giving Foundation.)
The median DAF payout rate across all sponsors was 9.7% in 2023. This payout has stayed around that rate for the past four years. Donation processors have by far the highest payout rates of any sponsor type, granting out around 82% in any given year. Community foundation sponsors have the lowest rates, granting out around 8-9%. (Community sponsors mainly support charities in a specific geographic region such as a state, county or city. Examples include the Silicon Valley Community Foundation, the Chicago Community Trust and the Community Foundation of the Ozarks).
DAF-to-DAF grants accounted for an estimated $4.4 billion in 2023. Some of these go-between gifts are the commercial sponsors' largest. In 2023, for example, Schwab Charitable's third-largest grant was to Fidelity Charitable, for $122 million. That same year, Fidelity Charitable's largest grant was to National Philanthropic Trust, at $195 million, with Schwab Charitable in second place at $183 million.
Private foundations gave at least an estimated $3.2 billion dollars in grants to national donor-advised funds in 2022. Private foundations' 5% annual payout requirement is supposed to ensure their grants go to operating charities in a timely way, but because DAFs have no payout or account-level disclosure requirements, foundation-to-DAF grants can undermine the foundation payout rules and transparency rules as well.
The report argues for more transparency.
"The public only has access to aggregate sponsor-level information about DAF grants and payout rates," said the report. "This means that individual DAF accounts that pay out at high rates may be providing statistical cover for DAF accounts that pay out very little, or nothing at all. And there is no way for regulators or the public to trace significant donations back to major donors, as is possible for private foundations."
The report noted that every year, more charitable dollars are diverted to donor-advised funds while nonprofits on the ground struggle harder to get funding.
"Donors reap significant tax savings from DAF giving, and those savings are subsidized by other American taxpayers with no guarantee of commensurate public benefit," said the report. "In the absence of adequate transparency, DAFs are ripe for mistreatment by donors and for-profit actors. Congress could ensure that DAFs are more accountable to the public and move funds in a timely manner to charities on the ground."
