Last week, Politico Pro published a short article on the Treasury Department’s proposed new rules for donor-advised funds (DAFs). Unfortunately, the article missed the recent groundbreaking research on DAFs and instead repeated some of the inaccurate claims of DAF critics. The good news is these claims are exceedingly at odds with the data and practices of donors using DAFs for their charitable giving.
Generous Americans have been increasingly giving through DAFs, a bright spot in an overall concerning charitable giving landscape. Through these vehicles, donors have distributed tens of billions of dollars to worthy causes, even in years when overall charitable giving has declined. Yet, some critics continue to minimize the value of keeping all charitable giving vehicles accessible and open to all.
Let’s address the most concerning assertion found in this recent article—that DAF contributions might never be disbursed to charities. While there is no government mandate that funds be granted out of a DAF, this claim runs counter to reality. When a donor contributes money into a DAF, the contribution is irrevocable. It no longer belongs to the donor and can never be taken back out. There is simply no incentive for a donor to let a contribution sit in a DAF forever.
And that is why the data show DAFs have robust payout rates, higher than the required payouts for private foundations. We see that in the aggregate, DAF money has a “shelf life” of about three to four years. Research shows DAF sponsors self-regulate with strict rules and remedies in place for accounts that don’t make grants over a set time period. For example, most community foundations grant on behalf of the DAF advisor if no grants have been made over a three-year period. Likewise, national DAF sponsors have similar payout rules in place.
We all want to see more money going to the charities hard at work in our communities. Setting irrational limits on DAFs is the wrong way to get there. DAFs encourage giving by providing flexibility: some donors grant money out immediately while other individuals and families plan their giving strategically over time for larger, impactful gifts or to respond to crises like COVID-19. Other donors may wish to use their DAF account as an endowment fund to establish a long-term giving legacy that can support a cause or community for years to come.
The 2024 Donor-Advised Funds Research Collaborative study also undermines the article’s argument that “DAFs are most frequently used by the wealthy.” This study shows that 60% of DAF accounts hold less than $50,000 in total funds, with the most common DAF account size being between $10,000 and $49,999.
For example, Fidelity Charitable—the largest national DAF account sponsor in the country—consistently finds the median DAF account to be around $20,000, with 56% of DAF accounts being smaller than $25,000 in 2022. We are not talking about a small group of high dollar donors.
The article also claims wealthy individuals are simply using DAFs to avoid taxes. As with any other charitable gift, any contribution into a DAF is money the donor can no longer use for personal spending. Even with the tax deduction, the generous individual still ends up with less in their wallet than if they did not give the money away at all. We should be encouraging charitable giving, not making it less appealing or vilifying those seeking to give back.
The real beneficiaries of DAF donations are the charities who receive tens of billions in grants from generous donors to support their missions. For example, Fidelity Charitable’s 2023 list of top DAF recipients includes Doctors Without Borders, St. Jude Children’s Hospital, American Red Cross and Salvation Army.
As to the often-echoed claim that DAFs are “increasingly displacing traditional giving,” again, the data speak for themselves. Even with a decline in charitable giving in 2022, DAF donors increased their grantmaking by an impressive 9% year-over-year. They were able to step up in 2022, during COVID, in the 2009 recession, etc., precisely because DAFs allow for flexibility in giving. Resources were available when most needed.
Far from “displacement,” the true metric to consider is impact. Charitable grants made by DAFs more than doubled between 2018 and 2022, with over $52 billion of charitable funds being distributed to support communities in need.
It may be tempting to repeat the unsubstantiated claims of DAF critics. But the facts make for a far better story. The story is of countless individuals using DAFs for their charitable giving and the charities that benefit from their generosity. Let’s focus on the true metric: the positive impact these funds have on communities in need.
