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 have 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. Total DAF assets have grown 67 percent over the past four years, from $152 billion in 2020 to $254 billion in 2023.
Our Charity Reform Initiative’s first annual Independent Report on DAFs demystifies donor-advised funds and their impacts on charitable giving, fair taxation, and our democracy itself.
The DAF Landscape
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.
Beyond the standard DAF analysis
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.
National DAF sponsors — groups with no geographic or cause-based mission, such as Fidelity Charitable or the National Philanthropic Trust (NPT) — have grown at by far the fastest pace, increasing 92 percent from 2020 to 2023. While they represent only 3 percent of DAF sponsors, national sponsors held 70 percent of all DAF assets, took in 73 percent of all DAF contributions, and gave out 61 percent of all DAF grant dollars in 2023.
The annual DAF Report, published by National Philanthropic Trust itself, 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.
For example: By grouping payment processors with national sponsors, DAF industry reports may understate average national sponsor DAF account sizes by as much as 80 percent. In 2023, for example, national sponsors and donation processors together would have had an average DAF account size of $63,332, versus $384,785 for national sponsors by themselves.
To rectify the narrative, we’re launching this report as an independent, transparent counterweight that we hope to update annually, and are making all of our sponsor data is available for public download.
How this report is different from DAF industry reports
We break out donation processors separately from other national sponsors, since the huge accounts at commercially affiliated sponsors bear little resemblance to accounts set up to process workplace or crowdfunding donations from small-dollar donors, so grouping these sponsors together can present misleadingly small account sizes for the national sponsors.
We provide estimates of DAF-to-DAF transfers, which can inflate both incoming contributions and outgoing grants, sometimes by a considerable amount: These intermediary grants accounted for an estimated $4.4 billion in 2023. By including DAF-to-DAF transfers in their grant, contribution, and payout numbers, industry reports on DAFs arguably inflate all three.
Some of these go-between transfers are the commercial sponsors’ largest. In 2023, for example, Schwab Charitable’s third-largest grant was to Fidelity Charitable, for $122 million. That same year, Fidelity Charitable’s largest grant was to National Philanthropic Trust, at $195 million, with Schwab Charitable in second place at $183 million.
We use the payout rate calculation IRS statisticians prefer, considering that DAF experts have estimated that the calculations used in DAF industry reports may overstate payout rates by more than 50 percent. The rate we use better reflects how much donors actually gave out of the total amount they had available to donate during the year.
And where possible, we use median values to represent typical sponsor behavior better than average values, since they aren’t skewed by outliers.
These steps are crucial because the public only has access to aggregate sponsor-level information about DAF grants and payout rates. This means that individual DAF accounts that pay out at high rates may be providing statistical cover for DAF accounts that pay out very little, or nothing at all. And there is no way for regulators or the public to trace significant donations back to major donors, as is possible for private foundations.
In the absence of adequate transparency, DAFs are ripe for mistreatment by donors and for-profit actors. And every year, more charitable dollars are diverted to donor-advised funds while nonprofits on the ground struggle harder to access funds.
Donors reap significant tax savings from DAF giving, and those savings are subsidized by other American taxpayers with no guarantee of commensurate public benefit.
Congress could take a number of steps to ensure that DAFs are more accountable to the public and move funds in a timely manner to charities on the ground.
Meaningful reform would increase the flow of money from DAFs to operating charities, discourage the warehousing of charitable dollars in DAFs, ensure transparency and public accountability, prevent abuses of the charitable system, and protect the fairness and integrity of the tax system.
Without intervention, DAFs will consume a greater share of the charitable pie. And without more transparency, we will have no way of knowing whether the taxpayer-supported funds building up in DAF coffers are used for our benefit.