DAF grantmaking to charities increases

Grants to charities from donor-advised funds grew 28% last year, according to a new report, as DAFs also come under scrutiny for helping the wealthy shield their money from taxes.

The report, released Tuesday by the National Philanthropic Trust, found that DAF grantmaking to charities across the globe grew 60% compared to pre-pandemic levels in 2019 and increased 400% over the past decade. Meanwhile, the value of grants from DAFs to charities around the world increased 28.2% to $45.74 billion, as contributions to DAFs grew 46.6% to $72.67 billion, charitable assets swelled 39.5% to $234.06 billion, the number of DAF accounts rose 27.6% and the grantmaking payout rate grew to a record 27.3%. 

"Global events like COVID-19 and the vaccine distribution, calls for racial justice, political unrest, supply chain challenges and its impact on the economy and then a steep increase in the U.S. financial markets were some factors that motivated DAF donors to support causes important to them," said NPT CEO Eileen Heisman in a statement.  "This report notes the highest DAF payout rate on record.  As well, it is remarkable to note that DAF grantmaking increased 400% during the past decade.  Both points reaffirm DAF donors are actively supporting charities today and also can serve as sustainable sources of funding for the long term."

Demetrius Freeman/Bloomberg

However, DAFs have also come under fire, with the California Attorney General's office issuing an audit report last month on the flow of money from private foundations into tax-exempt DAFs rather than directly into charities (see story). An investigation last month by Bloomberg News found billionaires steering money from their own foundations into DAFs as a way to delay their charitable gifts for years while continuing to claim tax deductions. The Institute for Policy Studies also released a critical report in August on the growing use of DAFs and private foundations by the wealthy instead of giving funds to charities directly.

The report from NPT, which itself manages DAFs, found that billions of dollars are nevertheless still flowing to charities. The value of grants from DAF accounts to qualified charities totaled $45.74 billion in 2021, a 28.2% increase from $35.68 billion in 2020, according to the report. That represents the second year of philanthropic response to the pandemic.  The 10-year average rate of grantmaking change from 2011 to 2020 was 17.5%, while DAF grants to charities exceeded $45 billion for the first time in 2021. Meanwhile, DAFs themselves are growing in size.

Contributions to DAF accounts totaled $72.67 billion in 2021, a 46.6% increase from $49.47 billion in 2020, representing the highest growth on record, according to NPT's annual reports.  Charitable assets in all DAF accounts totaled $234.06 billion in 2021, a 39.5% increase from $167.81 billion in 2020. The 10-year average growth rate of charitable assets from 2011 to 2020 was 17.7%. The continued growth of charitable assets under management came from a combination of investment gains, growth in the number of DAFs and contributions from donors.

DAFs themselves grew in popularity, with the number of DAF accounts in the U.S. totaling 1,285,801 in 2021, a 27.6% increase compared to 1,007,745 in 2020. The emergence of workplace giving accounts, lower contribution minimums and flexibility of DAFs contributed to the growth.The average DAF account size also grew to $182,842 in 2021, a 9.0% increase compared to $167,748 in 2020.

The grant payout rate (a calculation of grantmaking dollars from DAFs to charities relative to total DAF charitable assets) increased to 27.3% in 2021, up from 24.2% in 2020. The 12.7% increase was the highest payout rate on record, according to NPT, and reflects billions of dollars granted by DAFs to charities. "Historically, when we experience material year-over-year increases in contributions, similar to this report's findings, we see heightened and sustained grantmaking to charities the following years," Heisman stated. 

Until the steep plunges in the crypto market over the past year, money from crypto investors had also been flowing into DAFs, according to a report released in August by NPT (see story). According to that report, 61% of contributions to NPT's DAFs, on average over the past five years, have been illiquid assets such as shares of privately held businesses, along with stocks, cryptocurrency and real estate. Publicly traded securities made up 53% of DAFs, followed by complex assets at 8% (both of which are illiquid) while cash made up 39% of contributions.