Institute for Policy Studies, The Independent Report on DAFs

The Institute for Policy Studies has posted The Independent Report on DAFs. From the Introduction:

Thirty years ago, donor-advised funds (or DAFs) were relatively obscure giving vehicles housed in a small set of community foundations. Today, they’re central players in U.S. charitable giving — and they rocketed to dominance. DAFs now take in a sixth of all individual giving each year. And nine of the top 20 recipients of charitable gifts in the country — including the top three — are DAF sponsors.

DAFs are financial accounts managed by nonprofit organizations, which are called “sponsors.” Donors can give money to a personal DAF account and take an immediate tax deduction for that gift, since they’re technically giving to a public charity. The sponsor managing the DAF then gives the donors advisory privileges to recommend grants out of the DAF to whichever qualified charities they want, on whatever schedule they want.

This means that donors can claim substantial charitable tax benefits for their contributions to DAFs while still maintaining de facto control over the funds, which is one reason why DAFs are attracting so many donations. (Another is that they can offer complete anonymity.)

However, unlike private foundations — which are required to pay out a certain percentage of their assets each year to charities — DAFs have no payout requirement. So the money in these funds can often fail to move to working charities that directly address urgent needs. Operating nonprofits feel this strain while tax-advantaged donations stay on the sidelines.

More concerning still, many DAF sponsors are affiliated with giant, for-profit wealth management firms. These commercial DAFs provide enormous taxpayer-subsidized tax benefits to their contributors while collecting fees for managing the DAF assets. That incentivizes these firms to market DAFs as giving vehicles and to hold onto as many assets as possible.

As a result, we believe this system needs a lot more transparency.

The annual DAF Report, published by National Philanthropic Trust, or NPT, has long been the nonprofit sector’s primary source for nationwide DAF trends. But it’s produced by one of the largest DAF sponsors in the country and provides no transparency into its data set, among other shortcomings. To rectify the narrative, we’re launching this report as an independent, transparent counterweight that we hope to update annually.

Using publicly accessible data, we hope to demystify donor-advised funds and their impacts on charitable giving, fair taxation, and our democracy itself.

Lloyd Mayer