Donor-advised funds are the bullet train of philanthropy. In the past 30 years, they have grown with blink-and-you’ll-miss-it speed in the incrementalist charitable world. Once little-used giving vehicles, they now rank as one of the most dominant forces in philanthropy.
Just how dominant is clear from new research by Inequality.org, a project of the liberal Institute for Policy Studies. It found that 11 DAF sponsors were among the 20 charities that earned the most support from Americans in 2021. Two of those 11 are community foundations — Chicago Community Trust and Silicon Valley Community Foundations — but the rest are charities whose sole mission is to raise DAF money.
These are upstarts — each of the nine launched after 1990. The biggest shoved past venerable big brands of doing good like the Salvation Army (established in 1865), the United Way (1887), and Goodwill Industries (1902) on their way to the top.
In another sign of philanthropy’s changing balance of power: Donations to DAFs accounted for 22 percent of all charitable giving in 2021. Gifts to foundations, meanwhile, made up just 15 percent — the first time that DAFs netted more dollars than foundations. The comparison may not be exact — Inequality.org arrived at those numbers by comparing two separate datasets — but the trendline is remarkable: DAF contributions accounted for just 5 percent of all charitable giving only a decade ago.
DAFs are busting up the conventions of grant making as well. Grants from the funds in 2021 amounted to nearly half of the $96 billion that foundations gave away, according to the National Philanthropic Trust, a sponsor of funds that also compiles an annual report on their growth.
Billionaires using DAFs today include Elon Musk, Google co-founder Larry Page, and MacKenzie Scott. Some traditional charities have set up funds themselves in order to get in on the action. Stanford University has nearly $800 million in its DAF, according to its 2021 tax filing. More than a fifth of the $22 million donated to United Way of Rhode Island last year went to the organization’s DAF.
The Debate Over Donor-Advised Funds, Explained
As donor-advised funds have grown, so, too, has the controversy surrounding them. Proponents pitch DAFs as charitable savings accounts — a helpful instrument for an individual receiving a windfall inheritance or bonus or who wants to amass funds over time for a large gift. The funds are operated by registered charities, and donors get the same tax benefit they would receive with a gift to a college or food pantry. The charitable groups managing the funds control the money, but they almost always follow donors’ grant recommendations.
DAFs, writes Council on Foundations chief Kathleen Enright, “are an essential tool to democratize giving.”
Critics, however, see the rise of DAFs as a Wall Street-inspired hostile takeover of the charitable world. Three of the four largest DAFs were established as 501(c)(3)'s by the commercial asset-management firms Fidelity, Vanguard, and Charles Schwab. Those charities contract with their for-profit parents to manage donors’ money. The largest, Fidelity Charitable, which has assets of more than $48 billion, ponied up nearly $122 million in fees in 2022, according to its tax filings.
Critics also contend that DAFs further the “warehousing” of wealth intended for social good. Individuals collect the tax benefit of their donations immediately but can park the cash in the funds indefinitely. Unlike foundations, which are required by federal law to spend 5 percent of assets yearly, DAF donors are not required to make distributions from their accounts.
The result: Charities are losing out as donations sit idle, says Helen Flannery, author of the report and an associate fellow at the institute. “Wealthy donors are taking more and more control of the charitable arena. And DAFs are an instrument of that control.”
Debate over DAFs has moved from philanthropy to Congress, which is considering legislation to spur distributions from inactive funds. The bills, however, aren’t likely to take wing soon.
In the meantime, here’s a brief history of the runaway growth of DAFs:
1931
The New York Community Trust creates the first donor-advised fund to supplement its traditional fundraising. Community foundations remain the chief sponsors of DAFs for the next 60 years.
1991
Asset-management giant Fidelity creates its nonprofit DAF arm, soon to be followed by Wall Street rivals Vanguard (1997) and Charles Schwab (1999). Today, the three are among the four charities to receive the most in donations, according to Inequality.org’s analysis.
1996
National Philanthropic Trust — what is now the largest DAF sponsor without ties to a for-profit company — is established.
2006
DAFs are recognized in federal law for the first time. The Pension Protection Act introduces some regulation, including provisions that formalize the relationship between the donor and the fund sponsor.
2007
Silicon Valley Community Foundation opens and becomes one of the first community foundations to raise support almost exclusively through DAFs. Thanks to a clientele stocked with tech titans, its assets will reach $13.5 billion in about a decade, surpassing the wealth of the Ford Foundation.
2013
Facebook co-founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, donate $1 billion in Facebook stock to their donor-advised fund at the Silicon Valley Community Foundation — this after donating $500 million the year before.
2014
U.S. Rep. Dave Camp of Michigan introduces a tax plan requiring DAF donations to be distributed to working charities within five years. The legislation fails to muster support to pass.
2015
Fidelity Charitable becomes America’s largest charity based on dollars raised. It rakes in $4.6 billion, nearly $1 billion more than runner-up United Way. Fidelity will go on to top $15 billion in 2021, having grown more than 300 percent in just six years.
2018
Fidelity fund holders give away $5.2 billion, a total that eclipses the grantmaking ($5 billion) of the Bill & Melinda Gates Foundation — America’s largest private foundation — for the first time. By 2022, Fidelity grants would clear $11 billion — $4 billion more than the Gates Foundation.
2020
Billionaire philanthropist John Arnold joins with Boston College legal scholar Ray Madoff to launch the Initiative to Accelerate Charitable Giving, an effort to change tax laws to force foundations and donor-advised funds to distribute their assets more quickly. “There is no assurance that any of the $1.2 trillion currently set aside in private foundations and DAFs will ever be made available for charitable use,” the two write in a Chronicle opinion piece.
2022
A first-of-its-kind poll finds that 70 percent of Americans believe foundations and donor-advised funds should direct 10 percent of their assets to charities each year.
2023
Fidelity Charitable reports it has more than 300,000 donors, roughly three times the number from a decade earlier. Congressional legislation to force DAF donors to pay out more continues to languish.
