Contributions to donor-advised funds (DAFs) are a fast-growing philanthropic tool. Recent analyses express concerns about the impact of DAFs on nonprofits, particularly those held by commercial firms like Schwab and Fidelity. To help our community and policymakers understand DAFs and their policy implications, we developed these Frequently Asked Questions (FAQs) about donor-advised funds. We hope they will contribute to the discussion in the nonprofit and philanthropic communities. Click here to learn more about a California bill related to donor-advised funds recently introduced by Assemblymember Buffy Wicks and co-sponsored by CalNonprofits, NextGen California, and philanthropist Kat Taylor.
What is a Donor-Advised Fund?
How are DAFs useful to nonprofits?
What are some public policy concerns about Donor-Advised Funds?
What policy changes are recommended?
How many DAFs are there and how much do they hold?
What organizations sponsor DAFs?
What is a Donor-Advised Fund?
A donor-advised fund (DAF) is a financial account that holds charitable contributions from one or more donors and is managed by a charitable (501(c)(3) sponsoring nonprofit. Contributions to DAFs are irrevocable gifts to the sponsoring organization for which the donor is allowed to claim an immediate income tax deduction regardless of when, or if, these funds are later distributed to active charities. The sponsoring organization legally controls the management of the DAF including any distributions from the account to charitable organizations. In theory, the sponsoring organization could disburse the funds when and how they choose regardless of the donor’s intention. In practice, sponsoring organizations make disbursements based on directions from the donor to the account, which is why these accounts are defined as “donor-advised funds.”
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How are DAFs useful to nonprofits?
DAFs often provide donors with some of the advantages of family foundations, such as accounting and financial advisory services, with lower administrative costs than a family foundation. Also, DAFs can facilitate long-term charitable giving for donors with relatively smaller amounts of personal wealth but who want to take advantage of an immediate tax deduction. In some cases, DAFs can facilitate the gifting of non-cash assets (for example stocks or cryptocurrency) to charities that may not have the capacity to accept those donations.
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What are some public policy concerns about Donor-Advised Funds?
As DAFs have become an increasingly significant part of the philanthropic landscape concerns have been raised about how they operate compared to other types of charitable giving. These issues among others are often cited:
What policy changes are recommended?
With DAFs attracting a great deal of press in the philanthropic, business and mainstream media, a wide variety of proposed policies have come forward from various sources. These include:
How many DAFs are there and how much do they hold?
A 2018 report from the National Philanthropic Trust found that in 2017, 1,002 sponsoring organizations managed 463,622 individual DAF accounts with more than $110B in charitable assets. These DAFs received $29.2B in annual contributions and disbursed more than $19B in 2017, meaning DAFs received roughly 10% of all individual charitable contributions that year.
The number of DAFs have increased in recent years with the total number of DAF accounts more than doubling since 2013, rising from 218,613 to 463,622 in 2017. Over that same period, the total assets controlled by DAFs rose from $57B to $110B; annual contributions to DAFs jumped from $17.2B to $29.2B, and annual disbursements paid by DAFs grew from $9.8B to $19B.
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What organizations sponsor DAFs?
In the 1930s, community foundations were the first charities to establish DAFs, and currently, hundreds of community foundations throughout the country are DAF sponsors. Single-purpose charitable organizations, including universities, religious charities, and issue-specific charities, also sponsor DAFs. Starting in the 1990s, many large national for-profit corporations, including Wall Street firms like Fidelity, Vanguard, and Schwab, created affiliated 501(c)(3) organizations to sponsor DAFs. Many of these commercially-affiliated DAFs are now among the largest charitable organizations in the country. For example, Fidelity Donor-Advised Charitable Fund, affiliated with Fidelity Investments, has recently grown to become the single largest recipient of individual donations and, as a result, is considered the largest charitable entity in the nation.
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Comments
Interest and questions about DAF's have been raised at two of our Fundraising Academies recently, in Pleasant Hill and in San Jose. The Sanford Institute of Philanthropy would welcome an opportunity to host a learning session on DAF's in partnership with CalNonprofits. Let me know. Thanks.
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