Families face choices when it comes to how to do their philanthropy. They give in different ways using different vehicles. Yet, behind every careful decision there lies a heartfelt longing. Donors are eager to do good in the world and to express the values of their family members and loved ones. Plus, they want to create and nurture a legacy—one that lasts beyond this lifetime.
An early choice every philanthropic family must make is: What is our purpose as a philanthropic family? What do we want to accomplish? How can we make gifts in a way that meets our needs and the needs of those we want to serve? These are important questions!
Over the last 20 years and increasingly today, many families are choosing donor-advised funds (or DAFs, for short) as a way to meet their philanthropic goals. Some want a convenient low-cost way to manage their giving, or to tap into the expertise and networking opportunities that some sponsor organizations offer. Others already give through a private foundation, but may wish to give anonymously, outside their foundation’s mission or geographic focus, or receive maximum and immediate tax benefits. Still others wish to use DAFs to teach the next generation to be responsible inheritors and givers, to keep their family together over time, to enhance their engagement in advocacy, or to streamline their international giving. For these families and more, DAFs can make for a meaningful—and effective—way to give.
At the most recent count, an estimated $110 billion is in DAFs in the U.S., granting more than $19 billion annually to non-profits. While this number may sound small compared to the $715 billion in assets held in private foundations granting $52 billion (Foundation Center, 2014), each year, both the number of DAFs and the charitable dollars granted from DAFs are going up—making DAFs the fastest-growing vehicle in philanthropy. In 2000, for example, there was a $10.2 billion endowed in DAFs, granting $1.4 billion (Chronicle of Philanthropy, 2001). In other words, DAFs today endow roughly ten times what they did 18 years ago. In addition, despite the fact that the IRS does not require an annual payout amount from DAFs, data shows that aggregate grant payout rates from donor-advised funds annually exceed 20 percent for every year on record, with a grant payout rate of 22.1% in 2017. (Source: 2018 Donor-Advised Fund Report, National Philanthropic Trust)
Why the spike in growth and the consistent and continued high payout rates? Two reasons remain steadfast: the sheer ease of giving through a DAF (the sponsor organization administers the fund), and the fact that donors take an immediate tax deduction for what they contribute to a DAF—even though they can choose to give later. And a third, increasingly important, reason is the growing number of financial and wealth advisors with seamless access to DAFs as part of the portfolios they manage.
Beyond that, supply may have influenced demand. The number of sponsor organizations offering DAFs has exploded in the last two decades; today there are more than 1,000 known organizations offering DAFs for more than 460,00 individual donor-advised funds.
This NCFP primer is a guide for donors and families considering donor-advised funds. Whether you are a donor exploring a DAF or a philanthropic or wealth advisor working with families, this guide is designed to help you gauge whether a DAF is the right tool.
At the National Center for Family Philanthropy, it’s our hope that this guide will inform and inspire you as you continue to make choices that change your family and change the world.
Please note that this Guide includes links and examples for informational purposes only, and not as an endorsement of any of the funds mentioned or referenced.
What’s in this Donor-Advised Fund Online Guide?
Click here to find answers to these questions and more:
- What are Donor Advised Funds (DAFs)?
- When is the best time to start a DAF?
- What are the principal uses and benefits of DAFs?
- What are the important limitations and restrictions to using a DAF?
- What are sponsor organizations and what are the different types of sponsor organizations for?
- What services do sponsor organizations for DAFs typically offer?
- What questions should an individual donor, couple or family ask themselves before opening a DAF?
- What questions should donors ask their advisors when considering setting up a DAF?
- What questions should donors ask potential sponsor organizations when considering setting up a DAF?
- How do donor-advised funds compare with private foundations and other vehicles?
- What other data, trends, and analysis exist on the establishment and use of Donor Advised Funds in the U.S.?
- Do you have examples of DAF case studies and success stories?