The 2021 DAF Report from the National Philanthropic Trust provides additional evidence that donor-advised funds (DAFs) are continuing to grow unabated. With zero assurances that these funds will ever be made available for charitable use, the need for charitable tax reform is greater than ever.
Here’s what is important to know from the latest report:
- DAFs continue to divert greater amounts of funds away from charities. While total giving by individuals has remained constant as a share of disposable income, more and more of those contributions are going into DAFs instead of outright to charities. Last year DAF contributions increased by over 20% from the prior year, and almost doubled since 2016. To put this in perspective, the Chronicle of Philanthropy reported that the $48 billion contributed to DAFs in 2020 is “roughly equivalent to the amount of cash and stock raised by the 85 biggest organizations on the America’s Favorite Charities list.”
- DAFs are stockpiling wealth. The vast majority of contributions to DAFs, stay in DAFs. In 2020, over 82% of tax-benefitted assets sat in DAFs, translating into billions of charitable funds sitting on the sidelines during a year of immense need, all while taxpayers are left footing the bill.
- Total assets sitting on the sidelines in DAFs have almost doubled in 5 years. In 2020, total charitable assets in DAFs grew to nearly $160 billion. This is almost double the amount of DAF assets set aside in 2016. Society’s problems are compounding. Our communities are stronger when we use these assets to invest in charitable infrastructure today, rather than waiting tomorrow.
- Misleading comparisons to private foundations. While DAF sponsors like to compare the 18% payout rate to the 5% imposed on private foundations, this comparison is misleading. Contributions to private foundations receive fewer tax benefits in recognition of their delayed benefit to society. By contrast, contributions to DAFs receive the maximum tax benefits that were designed for outright gifts to working charities, making the 18% payout rate more accurately comparable to a 100% payout. In addition, the 5% payout rate is imposed on each private foundation, whereas the 18% is an amalgamation of all DAF accounts, allowing those that spend out quickly to hide those that spend nothing at all.
- Not all grants from DAFs get to charities. DAF sponsors report transfers to other DAFs as “charitable distributions,” meaning the DAF retention rate is higher and distributions to working charities are lower than the report suggests. One recent analysis showed DAF-to-DAF transfers totaled $1 billion in 2019.
Without a reasonable timeframe for these funds to be distributed, America’s working charities will be deprived of much-needed charitable resources. It is time to fix the broken connection between charitable tax benefits and benefits to charities.