Defying the 2022 decline in giving, contributions to donor-advised funds climbed to new heights last year, albeit at a slower pace than usual, according to a new report.
Contributions to DAFs totaled $85.5 billion, an all-time high. Year-over-year growth was a relatively modest 9 percent before inflation compared with the compounded annual growth of 24 percent posted from 2018 to 22. Still, it’s a head-turning increase given that contributions to all charities dropped 3.4 percent in 2022, according to the “Giving USA” report.
What’s more, the report confirmed a trend begun last year that indicates DAFs — which became commonplace over only the past 30 years or so — are now more popular than private foundations, philanthropy’s go-to giving vehicle for a century. Foundations (excluding community foundations) collected $44.8 billion in 2022, a little more than half of what DAFs netted.
Grants from DAFs also reached a new high — almost $52.2 billion, more than double 2018’s total. The one-year increase of 9 percent was well shy of the gains from 2020 and 2021. Those two years saw a collective jump of 70 percent, thanks in part to a confluence of several driving forces for giving: a strong stock market that provided cash to donors at a time when a multitude of crises — the pandemic, the social-justice movement, the Ukraine War — demanded attention.
Those numbers “were unbelievable and certainly not sustainable,” says Eileen Heisman, CEO of the National Philanthropic Trust, which published the report. “We were living in extraordinary, extraordinary times.” Last year’s stock market retrenchment also likely led to a contraction in DAF donations, which often come in the form of appreciated stock.
Heisman says the resilience of DAF contributions in the face of an overall giving decline speaks to the growing number of funds aimed at Americans besides the ultrawealthy. Foundations have long offered personal giving vehicles to the wealthy, she says. “Now, all of a sudden, you don’t have to make a nine-figure gift to do this.”
Automated giving and easy-to-use digital interfaces are also winning over younger donors, Heisman says. “People love the convenience.”
DAF critics, however, say the growing popularity of DAFs reflects other forces at work. Americans are increasingly turning to DAFs because they are heavily marketed to donors as a means to keep control of their wealth, avoid taxes, and avail themselves of the anonymity that comes from making gifts through a third party, says Chuck Collins, who leads the Program on Inequality and the Common Good at the Institute for Policy Studies.
The continuing growth of DAFs also means Americans increasingly use an intermediary to donate rather than giving directly to an organization. In 2022, 41 cents of every dollar donated by individual Americans went to a DAF or foundation, according to an IPS analysis of the data from “Giving USA” and NPT’s report.
“Donors got tax breaks in 2022 for $85.5 billion in DAF donations,” Collins said in an email. “Now the funds may sit indefinitely.”
Takeaways
The report is the 17th annual analysis of DAFs by the National Philanthropic Trust, which is one of the largest managers of funds. Other takeaways from the report and 2022 DAF news include:
Giving to DAFs is oustripping that going to foundations — by a lot. Donations to the funds now account for 27 percent of all individual giving, according to an analysis by the Institute for Policy Studies. Giving to foundations, meanwhile, makes up just 14 percent of dollars donated by individuals.
The giants in the DAF industry set the pace. While more than 1,100 charitable organizations sponsor the funds, the 73 groups that operate nationally collected nearly three-quarters of all dollars given to DAFs in 2022. They also accounted for nearly two-thirds of all dollars distributed from funds to charities.
Fidelity Investments Charitable Gift Fund remains top dog but faces a stiff challenge. Giving to the nonprofit offshoot of the commercial investment brokerage actually slipped in 2022, dropping from $15.3 billion in 2021 to $15.2 billion, according to its tax filing. Heisman’s National Philanthropic Trust, meanwhile, ballooned from $8.6 billion in contributions in 2021 to $13.2 billion last year, according to its tax filing.. She attributes the huge jump chiefly to large gifts made by three donors.
The gains of 2022 weren’t distributed evenly. Giving to community foundation DAFs, which account for 63 percent of all DAF sponsors, fell off by 19 percent, to $11.9 billion. Interestingly, even as money flowing to the funds declined, their grant making jumped 27 percent, to $11.9 billion.
Debbie Wilkerson, president of the Greater Kansas City Community Foundation, said this is a familiar pattern. “We find that our donors are able to contribute to their donor-advised funds when markets are good and their finances allow them to set some dollars aside for charitable giving. And then they give them out with abundance during those market downturn years,” like 2022.
The payout rate — the share of assets distributed to charities — dropped in 2022 but was largely in the range of prior years. In aggregate, DAFs paid out 23 percent of their assets, down from 28 percent in 2020 and 29 percent in 2021, the highest figures on record. In previous NPT reports, DAFs distributed at least 20 percent in aggregate assets each year.
The calculation of payout rates is contentious. NPT divides grants made during the current year by assets held at the end of the previous year — the same formula that foundations use to report payout. In an appendix to its report, it calculates 2022’s payout rate by three additional formulas, with rates ranging from 19 percent to 34 percent.
DAF critics says it’s misleading to analyze payout rates for the industry in the aggregate. A study of individual DAF accounts at Michigan community foundations determined that more than half give less than 5 percent of their assets each year.
