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Nov. 9, 2021, 12:48 p.m. EST

Grants From Donor-Advised Funds Rise 27% to Nearly $35 Billion

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The use of donor-advised funds as a vehicle for giving to charity continues to surge, with the latest figures showing the “biggest jump in a decade,” says Eileen Heisman , CEO of National Philanthropic Trust, an independent Philadelphia-based DAF provider. 

Grants distributed from 976 donor-advised funds, often shortened to DAFs, tracked in NPT’s 15th annual report on the sector grew 30% faster than contributions, according to the 2021 report

DAFs are investment funds administered by a nonprofit, including national nonprofits—such as NPT—community foundations, and other sponsoring charities. Individuals who contribute to these irrevocable, tax-deductible charitable funds use the assets to make grants to qualified nonprofits. Unlike private foundations, which are required to distribute 5% of their holdings annually to charity, DAFs don’t have to make annual distributions. 

Relying on figures taken from 2020 Internal Revenue Service filings, the report shows grant levels rising 27% to nearly US$35 billion, while tax-deductible contributions into DAFs rose 20.6% to US$47.85 billion.

Most nonprofits that provide DAFs have fiscal years that run from July to June, which in this latest report included the early months of the coronavirus pandemic. 

“That 27% increase we’re attributing to the amplified grant making due to the pandemic,” Heisman says. 

In the latest report, however, NPT found the payout rate for DAFs in the 2020 tax year rose to 23.8% from 22.3% in 2019 . Also, Heisman says, the $34.67 billion granted from DAFs in 2020 is more than half what private foundations gave despite the fact DAFs have only 14.5% of the assets in foundations, Heisman says. 

The figures answer critics who accuse DAFs of being tax-advantaged vehicles that allow individuals to “house” money, she says. 

A bill introduced in the U.S. Senate seeks various reforms to both private foundations and DAFs to allow more money to move from these vehicles to nonprofits more quickly. One proposal in this legislation would create qualified DAFs to distribute all assets to charity within 15 years. 

Heisman says that kind of restriction would limit the ability of families to pass their DAFs onto the next generation as a charitable vehicle. While most individuals don’t use DAFs as legacy vehicles, “it might disincentivize people to use it,” Heisman says. 

Donors are actively grant-making from these vehicles, she adds. “I’m wondering, in some ways, what problem they are trying to solve.” 

While not directly comparable, data from other philanthropic reports confirm giving rose as the pandemic hit communities across the country. Overall, charitable giving in the U.S. rose 5.1% in 2020 to a record US$471.44 billion, the Giving USA Foundation reported in June. 

The last time DAFs saw such a big jump in grant-making was in the midst of the financial crisis, Heisman says. Although, overall, growth in grants distributed from these funds has outpaced the growth of contributions in six out of the last ten years, the report said.

“Grants have been aggressive,” Heisman says. But, she adds, “it’s not just now and in response to critics—they are just increasing in popularity.” Using a DAF as a vehicle for giving to charity is like “getting in and out of a car with a remote” instead of using a conventional key—it’s a tool that simplifies the ability to give to charity, she argues. 

Some of the rise in contributions in the latest reporting period is also from a 16.3% increase in the number of DAF accounts to more than 1 million accounts. 

That’s likely because digital offerings by providers such as Benevity, based in Calgary, Canada, and Charityvest in Atlanta, which require low minimums to open, are making it easier for more individuals to open accounts, she says.

DAFs are also increasingly being used in workplaces as an alternative to federated funds—cooperatively owned membership organizations such as United Way or the Jewish Federation, Heisman says. 

Previously, companies would arrange payroll deductions with these federated funds, but “now it’s going to DAFs,” she says. 

As a result of the growing numbers, the average account size has fallen by 5.5% to US$159,019 in the latest period, the 2021 report said. Total assets in DAF accounts, however, rose 9.9% to nearly US$179 billion, which the report partly attributes to strong stock market gains in 2020. 

Heisman expects the next report will continue to show high levels of giving as it will capture the response to the racial and social justice protests that erupted in the second half of 2020 after the murder of George Floyd by a police officer in Minneapolis. 

“The next report will have a great picture of what DAF donors were doing in response to real demands in society,” she says.

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