Donor Advised Funds: data key to understanding this important giving mechanism

By Anna Pruitt and Jon Bergdoll

Far from being mysterious, DAF grants follow clear patterns associated with high-net-worth donors.

In the United States, the giving vehicles known as donor-advised funds (DAFs) have garnered an enormous amount of attention in recent years due to their rapid growth across every category, from asset value to number of accounts to contributions and grants. According to one recent report, grants from DAFs in 2020 would be equivalent to roughly seven per cent of total giving to nonprofits in that year in Giving USA.

Recent well-publicized efforts have sought to place stricter regulations on these giving vehicles. Some critics have accused DAFs of not distributing funds to nonprofits quickly enough, citing the rapid growth in DAF asset value and the fact that DAFs may make distributions to other DAFs, an operation known as DAF-to-DAF transfers. In many of these conversations, DAFs are characterized at best as mysterious and at worst as nefarious.

Regardless of one’s views, these conversations suffer from a lack of available data. Our new research, published in partnership with Giving USA Foundation, helps to demystify the role that DAFs play in the philanthropic sector by looking at how DAF grant dollars flow within the sector and which organizations serve as the final destination for these grants.

Our study, which tracks over 70 per cent of total DAF grant dollars from 2014-2018, found that grants from DAFs follow clear patterns and that these patterns stay relatively stable over time. Education and religion received the most dollars from DAFs over those years, at 29 per cent and 14 per cent of total DAF grant dollars respectively. Those percentages are almost exactly reversed when compared to giving from all sources during those years, with religion receiving 31 per cent of the total and education receiving 14 per cent. We also found that giving to arts received 9% of DAF grant dollars, compared with four per cent of the total in Giving USA. These giving patterns, perhaps unsurprisingly, closely reflect the philanthropic priorities reported by high net-worth donors in other research by the school.

These trends may be changing in the wake of the exceptional events of 2020. According to a subset of data from 2019 and 2020, DAF grant dollar amounts grew by 39 per cent and the number of distinct grantees grew 11% between 2019 and 2020. DAF giving to human services grew 138 per cent, while giving to public-society benefit organizations nearly doubled. DAF grants to Historically Black Colleges and Universities and other racial justice organizations more than quadrupled.

Finally, our study found that DAF-to-DAF transfers grew from six per cent to 12 per cent of all outflowing dollars from DAFs in our sample from 2014-2018.  These transfers seem to be innocuous – they typically represent accounts transferring from one sponsor to another – but these transfers should be accounted for as policymakers and other researchers consider how to measure DAF activity. The growth in transfers from DAFs to other DAFs is a reminder that DAFs are one of the many different types of intermediary organizations through which philanthropic dollars flow within the sector.

Our study addresses some of the gaps in knowledge about DAFs, but there are many aspects of DAFs that need additional exploration, including the question of how DAF accounts are operating at the individual account level.

Contributions to and grants from DAFs continue to grow at impressive rates, meaning that DAFs are likely to play an even more prominent role in philanthropy in the future than they do now. No matter how one feels about them, DAFs are part of the philanthropic landscape, and it is more vital than ever to have a deep understanding of the role that these giving vehicles play in philanthropy.

This article was first published by Alliance magazine on 4 January and is being re-published with permission.

Anna Pruitt is Managing Editor of Giving USA, and Jon Bergdoll is a statistician, both at the Indiana University Lilly Family School of Philanthropy at IUPUI. They are co-authors of the recently released Giving USA Special Report Donor-Advised Funds: New Insights, which is published by Giving USA Foundation.