New Report: Valuable Insights into Donor-Advised Funds with Dr. Daniel Heist, Part 3

In light of ongoing criticisms of donor-advised funds (DAFs) and their growing popularity as a flexible giving vehicle, Philanthropy Roundtable interviewed one of the authors of a new research report, “The 2024 National Study on Donor-Advised Funds.” The report offers valuable insights into why these criticisms are unfounded. Equally important, the report demonstrates the myriad ways DAFs are used by donors to strategically support charitable causes, democratize giving and improve countless lives. 

The authors gathered and analyzed a large dataset covering nine years of activity from more than 50,000 accounts, with over 600,000 inbound contributions to DAFS and more than 2.25 million outbound grants from DAFs. Overall, this report represents the most extensive independent study on DAFs to date. 

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. 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 conclusion of the interview with Heist focuses on DAF sponsor policies, inactive accounts and trends in grantmaking. Observing DAF sponsor policies, particularly around issues like account inactivity, is important because DAF critics often say donors do not grant out charitable funds after contributing to their DAF accounts. This often leads to unwarranted calls for mandatory timed payout requirements to be imposed by government agencies.  

As this section of the interview demonstrates, inactive accounts, while rare in number, tend to be newer DAF accounts and are often much smaller than the typical account. More importantly, almost all DAF sponsors have policies and guidelines in place to prevent account inactivity, suggesting the sector is self-regulating.  

This is the third and final blog of a three-part series based on this interview. Read the first part here and second part here

Q: Does the study explore the influence of DAF sponsor policies on grantmaking? 

Heist: The current study does not directly explore the influence of DAF sponsor policies. We know from other research that most DAF sponsors have policies to guide grantmaking. We are planning to explore this topic through our Donor survey and Management survey, which are forthcoming. 

Q: The study says DAFs facilitate both large and small grants. What factors influence the size and timing of grants? 

Heist: We are launching a Donor survey in April that will answer those exact questions. From our qualitative research interviewing donors and professional fundraisers, we know that donors are more likely to use their DAF to make larger gifts than they would online or with a checkbook. We are also finding that fundraisers who know that a donor uses a DAF will adjust their solicitation strategy and may ask for more or may ask for a second gift in a year. 

Q: Some accounts were inactive, making no grants in a multi-year period. What factors might explain this, and how do these accounts differ from active ones?  

Heist: In general, inactive DAF accounts are newer and smaller than actively grantmaking DAFs. There are many reasons why a DAF may be inactive. For newer DAFs, we know from our shelf-life estimates that most DAFs don’t make a grant the first year they are opened. But then within a few years most DAFs are giving away most of their original contribution. For the smaller DAFs, one explanation is the donor used the DAF for several years but did not have more money to contribute, so the DAF is in a holding period until they can contribute more.  

We have more explanations to explore, such as the age of the donor being a factor. We know from other research that almost all DAF sponsors have inactive account policies in place to ensure a DAF does not go too long without grantmaking. The current study also shows that almost all (92%) DAF accounts have a succession plan, which helps to reassure that no matter what the reason for inactivity there is some plan in place for how the money will be used.  

Q: The study suggests a connection between contribution and grant timing. Can you elaborate on this finding and its potential implications for understanding donor behavior? 

Heist: The study helps us understand a couple of things about donor behavior. First, donors are more likely to contribute into a DAF at the end of the year, but granting out of a DAF is more consistent throughout the year. This can help fundraisers know that DAF donors are not as influenced by the calendar year, so they can make their solicitation earlier in the year.  

Second, we see that contributions into DAFs are less frequent than grants out of DAF. This suggests that donors are contributing lump sums into the DAF and then dividing up that money among multiple charities. It is possible that some charities are benefiting from DAF grants that may not have otherwise received a donation. 

This is the final of three blogs in this interview series. Find part 1of the interview here and part 2 here. 

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