Our Take: Mandates are Unnecessary for Donor-Advised Funds to be Effective

Our Take: Mandates are Unnecessary for Donor-Advised Funds to be Effective

Jul 15, 2020 Sara Barba

You may have recently seen a contributor piece in Inside Philanthropy entitled “DAFs Are a Monument of Wealth and Power That Must Come Down.” The title alone is an attention-grabber, and the content that follows is quite critical, but it doesn’t quite paint the whole picture.

The author, Edgar Villanueva, rightly points to the many benefits of donor-advised funds throughout his piece. First of all, DAFs allow donors like Mr. Villanueva to move philanthropic resources quickly. They also allow donors flexibility in advising how and where the money, which is already earmarked for charity, is granted. And as Villanueva points out, DAFs are a growing philanthropic tool that saw 66 percent growth from 2012 to 2016, likely due to their ease of use and effectiveness. All of these benefits likely explain why he chose to open his own DAF last year.

Donor-advised funds are clearly a vital philanthropic tool with an impressive track record. According to National Philanthropic Trust, the average payout rate from sponsoring organizations that hold DAFs has exceeded 20 percent over the last five years – double what Villanueva and others are calling Congress to mandate. For so-called “tax havens” where donors sit “on the money indefinitely,” charitable dollars surely seem to move out of them effectively and quickly.

Additionally, in response to the current crises, DAFs are stepping up even more. A recent survey from the Community Foundation Public Awareness Initiative shows that DAF grants from 64 community foundations surveyed grew by 58 percent in March and April compared to the same time last year. And that’s just a small subset of the nearly 800 community foundations in the United States.

Are critics like Mr. Villanueva, who are calling for a one-size-fits-all mandate on philanthropy, really calling for more dollars to their preferred causes, in their time frames?  Whatever the answer may be, the danger of such blanket mandates is that they don’t account for the future. Whether it be a longer-than-expected COVID recovery or a new disaster in five years, there will always be a need for charitable gifts. Decisions based on the presumption that one crisis is more important than the rest politicizes charitable giving today and puts the health of our communities at risk tomorrow.

Fortunately, philanthropic freedom allows donors like Mr. Villanueva to direct their charitable dollars to the charitable causes they favor when they choose. The generosity demonstrated by the near 20-percent payout rate from DAFs shows that freedom is clearly working.