Many donor-advised funds have more money sitting in them and dole out less money to charities than previous research says, according to a recent report published by the Institute for Policy Studies, a think tank that is critical of the lack of payout requirements for DAFs.
“At large commercial DAFs, the average account sizes are huge,” says Chuck Collins, director of the charity reform initiative at IPS. “You can’t say $300,000-plus is a working-class or middle-class person’s DAF.”
“The Independent Report on DAFs” is based on publicly available data similar to that used by the National Philanthropic Trust, which annually produces a well-regarded report on DAFs. But Collins says IPS analyzed the data in a way that gives a clearer picture of what’s happening with DAFs.
IPS looked at DAF-sponsoring organizations differently. Typically DAF reports describe three types of sponsors: community foundations, national sponsors, like Fidelity Charitable or Schwab, and single-issue sponsors, such as religion, education or health care. IPC added a fourth category for sponsors: donation processors. This group is defined as “sponsors that administer mass-scale contributions (such as workplace giving, payroll deduction, or crowdfunding programs).”
When donation processors are removed from the national sponsor category, account sizes balloon and payout amounts dramatically decrease for national DAF sponsors, IPS says.
According to the report, the average account size at a national sponsor was $390,910 in 2023, compared to $167,780 at community foundations, $97,591 at single-issue sponsors, and $306 at donation processors. A report from the National Philanthropic Trust, which the IPS report criticizes, found national sponsors had an average account size of $110,194, compared to $528,209 at community foundations and $234,674 at single-issue sponsors.
Payout rates were highest — 83.6 percent — for donation processors, compared to 16.3 percent for national sponsors, 9.9 percent for single issue charities, and 9 percent for community foundations.
Collins says more should be done to get money flowing to charities. “We want people to be thinking ‘revolving door’ — money in, money out, not warehousing it.”
New Perspectives Welcomed
The National Philanthropic Trust, whose methods the report criticizes, declined the Chronicle’s request for comment on the report. Danielle Vance-McMullen, a co-founder of the DAF Research Collaborative, says that she appreciates the additional information on DAFs the report provides.
“As people who’ve been in this space a long time, we can remember when there was almost nothing on DAFs,” she says. “So we love seeing more research around DAFS from many different quarters.”
The separation of donation processors is helpful, Vance-McMullen says, but she notes that the NPT reporting started before donation processors existed. She suspects “they favored consistency in their methods over time, versus changing things to do that breakout.”
There’s a benefit to that consistency, says Dan Heist, another co-founder of the DAF Research Collaborative. “You can look over the last 15, 20 years and compare the same buckets over time.”
The IPS report argues that the DAF system is broken because donors get a tax break when they contribute money to their funds, but charities don’t see any benefit until they distribute the funds, often years later, leaving organizations struggling in the present.
Heist says the IPS report may miss some nuance when it comes to payout rates because it used aggregate data from public 990 tax forms, which don’t include when the account was opened. Heist’s research often includes this data, which he says offers more context about money flowing out of DAFs.
“There are a lot of new accounts being opened and people putting money in on December 15th. There’s going to be a lag in grant making,” Heist says, noting that people who put money in for that tax year often wait to dole it out the following year, or even later, making it look like money is going in but not coming out.
The IPS report offers general suggestions to improve the DAF system, without outlining specific policy changes, including increasing the flow of money from DAFs to charities, ensuring DAF transparency, and protecting the integrity of the tax system.
“DAFs are the fastest growing recipient of charity funds, so we should have a thoughtful conversation about them,” Collins says. “Should we increase incentives for payout? Should there be greater transparency? Those are all policy questions, and we hope this data might spark those conversations.”
