Donor-advised funds (DAFs) have emerged as a powerful tool for charitable giving, offering flexibility and a streamlined approach to philanthropy. A new study by the DAF Research Collaborative, the largest of its kind to date, sheds light on the inner workings of DAFs, revealing their immense value for donors and their growing impact on communities in need.
DAFs offer several advantages. They are significantly easier and less expensive to establish and maintain, removing barriers for individuals who may not have the resources or expertise to manage their own charitable foundation. This ease of use translates to more people being able to participate in philanthropy, broadening the donor base and diversifying the flow of charitable funds.
Furthermore, DAFs provide donors with unmatched flexibility. They can contribute various assets, including cash, securities and even real estate. The ability to recommend grants over time allows donors to align their giving with evolving priorities and emerging needs. This flexibility empowers them to make a lasting impact on causes they care about deeply.
Key Insights into DAF Dynamics
This nine-year study (2014-2022), encompassing over 50,000 accounts and 2.25 million grants, paints a clear picture: DAFs are accessible, versatile and increasingly popular. Roughly half of DAF accounts boast assets under $50,000, highlighting their appeal to everyday Americans seeking to make a difference. This accessibility is further emphasized by the fact that 81% of accounts were opened after 2010, showcasing a recent surge in their adoption.
Delving deeper into the data, the study reveals intriguing insights into the dynamics of DAFs. Predominantly advised by individuals or families, these funds often serve as a legacy vehicle, with a vast majority (92%) having succession plans to ensure continued impact even after the original donors are no longer living. This is consistent with prior research on DAFs which finds the vast majority of DAF sponsors are self-regulating.
Grantmaking: A Steady Stream of Support
The study reveals DAFs allow donors to be active agents of change. Most donors use DAFs to make grants shortly after opening, with an average payout rate, the percentage of DAF assets granted to charitable causes annually, at a commendable 18%. More than half of accounts pay out over half of their original contribution within just three years. This translates to a steady stream of funding flowing toward critical social issues, cultural initiatives and local communities.
About eight-in-10 accounts made grants over a three-year period, while those that didn’t were characterized by being smaller in size and newer in establishment. This correlation is not surprising when considered in the context of philanthropic behavior. Smaller and newer DAF accounts may belong to individuals or families in the early stages of their philanthropic journey.
These donors may be saving for a larger impactful gift or putting their money aside now to grant out thoughtfully in later years. Larger accounts may have more resources available for immediate grantmaking, while smaller accounts may take longer to accumulate sufficient funds or develop a clear giving strategy. Similarly, newer accounts may require additional time for donors to establish their philanthropic priorities and become actively involved in grantmaking activities.
Once donors contribute to their DAF, the funds are irrevocably dedicated to charitable giving, regardless of the timing of grantmaking activity. Donors to DAFs also have the added advantage of growing their charitable donations over time through fund appreciation, increasing available funds reserved for future charitable donations.
Interestingly, the study found grantmaking from DAFs is spread relatively evenly throughout the year, unlike the traditional year-end giving surge. This consistency provides crucial support to organizations that rely on predictable funding to deliver their programs and services effectively. Unlike year-end donations, DAFs decouple giving from tax season. This allows donors to plan and distribute funds strategically throughout the year based on actual needs and opportunities, and in response to crises when they arise.
Shaping the Future of Giving
Donor-advised funds are not just changing the face of philanthropy, they are democratizing giving and accelerating positive change. By making philanthropy more accessible, flexible and efficient, DAFs empower individuals to make a real difference in the world. As we continue to navigate the evolving landscape of philanthropy, understanding and leveraging the potential of DAFs will be instrumental in driving positive change and addressing pressing societal challenges.
