A new report out of the National Philanthropic Trust (NPT) illustrates the importance of donor-advised funds for charities and the communities they support.
Donor-advised funds, or DAFs, are charitable savings accounts targeted by a bill in the Senate that would dampen their power and appeal as a giving vehicle. The bill, S. 1981, is sponsored by Senators Angus King (I-ME) and Charles Grassley (R-IA) and echoes the goals of DAF skeptics associated with law professor Ray Madoff and billionaire John Arnold.
We have shown here before that DAFs are effective tools that allow donors to irrevocably commit funds to charitable giving while allowing time for strategic gifts or longer-term appreciation of charitable funds over time. Yet critics of DAFs argue that these accounts are used to “warehouse” wealth, without evidence to demonstrate this is the case.
The new NPT Donor-Advised Fund Spotlight reveals once again that DAF donors distribute funds to charities at impressive rates. Among its key takeaways:
- DAF payout rates “have been consistent for more than a decade through social changes and economic cycles.”
- “DAF grant payout rates exceed that of private foundations by a factor of three to six times, depending on the payout formula. DAFs’ charitable assets equate to only 14% of private foundations’ charitable assets.”
- “The 12-year compound annual growth rates (CAGR) of grants and charitable assets are nearly identical (13.1% and 13.4% respectively), confirming DAFs are both generous and sustainable sources of support for charities.” This balance between assets in DAFs and gifts paid out of DAFs is further evidence these vehicles are not being used to “stockpile” funds.
The report examines historical data and concludes: “The consistency across years and sponsor types, as well as the parallel growth in grants and charitable assets, is significant because it dispels the myth that DAF sponsors of any type are ‘warehousing wealth.’”
With such strong payout rates across types of DAF sponsor and over time, there is simply no justification for the payout mandates as proposed in S. 1981. This report once again confirms that data show DAFs are helping donors support our vibrant charitable sector.