With the recent introduction of the House version of the so-called Accelerating Charitable Efforts (ACE) Act, accurate and reliable information on donor-advised funds, or DAFs, is more crucial than ever. The basis for H.R.6595 and S. 1981 is an unfounded assertion that DAF donors are “stockpiling” funds in these charitable giving accounts and resources are not reaching the ultimate charitable recipients fast enough.
That’s why the Philanthropy Roundtable interviewed one of the authors of a recent research report, “Understanding the Donor-Advised Fund Giving Process: Insights From Current DAF Users.” The authors analyze qualitative data from 48 in-depth interviews with DAF users, resulting in a vibrant picture of why and how donors use DAFs. Based on these data, the report sketches a “giving process” with four phases and multiple decision points and examines common strategies of DAF donors. Overall, this report illustrates the “abundant diversity in individual adaptation for giving through donor-advised funds.”
To get a better sense of the report’s implications, we spoke with corresponding author Dr. H. Daniel Heist, an assistant professor of Public Administration and Nonprofit Management in the Romney Institute of Public Service and Ethics at Brigham Young University. Dr. Heist’s research focuses on charitable giving and philanthropy, especially donor-advised funds, as well as volunteering. His nine years of professional fundraising experience inform his research and teaching.
The following is the first of three blogs based on this interview.
What are the key takeaways from this paper?
The key takeaway is that DAFs facilitate a wide range of philanthropic strategies. Some donors use DAFs as an easy way to donate stocks. Some donors use DAFs to donate to charity during a wealth event. Some donors use DAFs to build up for a major gift. Some donors use DAFs to sustain long-term charitable giving. Some donors use DAFs to engage the next generation in philanthropy. And some donors use DAFs for a combination of reasons. Every interview we conducted, we learned something new about how donors use DAFs.
Not only are there a wide range of purposes and ways of using a DAF, but there is also a wide range of timing. Giving through a DAF that has four phases: 1. Setup, 2. Grantmaking, 3. Maintenance (including additional contributions), and 4. Future plans. Steps 2 and 3 are an iterative cycle that repeats over time. For some donors, this process happens quickly (within months), but for other donors, this process can take a lifetime.
In our next, forthcoming paper we found that there are some patterns to the timing of how long donors take in giving money through a DAF. We categorized donor strategies into three models: tubs, tanks and towers.
- Tub donors give quickly through a DAF, moving money in and out annually (or 1-2 years).
- Tank donors contribute large lump sums and grant the money away in the relatively near future (usually about 3-10 years).
- Tower donors take a calculated approach with the DAF to sustain their philanthropic activity for the long term (generally 10+ years).
There is one important caveat to note. Every donor we interviewed was actively using their DAF; some donors may not be actively using their DAF.
Why did you decide to take a qualitative approach to this research?
Much of what we know about DAFs comes from IRS Form 990 data, but it is so hard to understand the “why”s and “how”s of DAF giving from aggregated statistics. Qualitative research allows us to hear the stories behind the numbers.
Every interview we did was different, and we learned something new from every donor. We were amazed by the variety of ways that people use a DAF. When you understand donors’ stories, you begin to understand why they use the DAF the ways they do.
For example, one donor used a life-insurance benefit to set up a scholarship honoring her husband who had passed away and to continually support the charities they supported when he was alive. One donor set up a DAF when he retired and sold his part of the business he had worked at his whole life. He used his DAF to pay tithing and support a few charities every year. When he dies, he is leaving one-tenth part to each of his nine children and the remainder to his church.
Some donors used multiple vehicles, such as a private foundation and a DAF, or even multiple DAFs. We know from 990 data that there are DAF-to-DAF transfers, but the interviews allowed us to learn why. Everyone knows that DAFs can be used for anonymous giving, so we asked our participants why they give anonymously, and we were able to learn their circumstances and their motives. We never would have found answers to these questions by looking at 990 data.
Next week, in the second of three blogs in this series, Heist discusses more about his findings on DAF-to-DAF transfers, private foundation DAF use and the role of anonymous giving.