December 6, 2010

Donor-Advised Funds’ Growth Surges: NPT Report for 2010

DAFs are growing faster than other charitable giving vehicles

Although the U.S. economy continued to struggle in 2009, the number of donor-advised funds grew by 3% and total dollar grants from these vehicles to charities exceeded total contributions into DAFs for the first time, according to the 2010 Donor-Advised Fund Report just released by National Philanthropic Trust.

Donors paid out more than $6 billion, the second-highest total in the six-year history of the study, according to Andrew Hastings (left), NPT’s vice president for external affairs and the chief researcher and writer of the study. “This shows us that people still remained very committed to supporting their charitable causes, and they were doing it through their DAFs,” Hastings said in a telephone interview with AdvisorOne.

The new report is based on data collected from 331 charitable organizations that sponsor DAFs during the second and third quarters of 2010. These include national programs, community foundations and a variety of other sponsor organizations.

These are the new study’s key findings and projections:

  • DAF asset values, contributions and grants all declined in 2009, for the second consecutive year.
  • Donor-advised funds outnumber private foundations by more than two to one. This is based on steady growth over the past 15 years and a 3% increase last year.
  • In 2009, the $6 billion of donor-advised funds’ total grants made to charities exceeded the $5.9 billion in total contributions into DAFs. 
  • DAFs are poised for significant near-term growth, especially if the economy continues to improve, with marked gains coming across all areas—assets, grants, contributions and new accounts.

Hastings ascribed the rapid growth of DAFs to their tax benefits as well as to the simplicity and ease of establishing a fund, saying, “The paperwork for establishing a DAF will take 20 to 30 minutes to complete, and there’s no cost to setting it up.” This is in contrast to a private foundation, which almost invariably requires the services of an attorney or other professional for help in submitting paperwork to the IRS, followed by several weeks’ wait for approval. “Setting up a DAF is like opening a bank account, whereas setting up a private foundation is like opening a bank.”

He said that NPT has seen growing interest in DAFs among high-net-worth and ultra wealthy clients, “those you would think would have not only the means but also the inclination to set up a private foundation.” This is because DAFs allow donors to support charitable causes anonymously, whereas with a private foundation, everything is part of the public record. “For many individuals, philanthropy is an extremely personal endeavor. The last thing a lot of high-net-worth clients want people to do is to see their personal financial data. And they’re looking to pursue their philanthropy quietly,” Hastings said.

At the same time, for those who want to be identified with their charitable giving, the DAF provides that opportunity as well, he said. “If you want personal recognition, you can have it with a DAF; but what you can’t have with a private foundation is anonymity.”

Other factors tilt in DAFs’ favor, Hastings said. The ongoing cost of administration to maintain a private foundation is far greater than with a DAF. And with the Pension Protection Act, individuals can be held personally responsible and liable for the actions of their foundations. “The penalties have increased, and the regulatory environment has gotten a lot stricter,” he said. “So, unless it’s going to be your full-time vocation like Bill and Melinda Gates, why have that attendant risk and responsibility when with a DAF, you get to focus on what’s important to you, the philanthropy?”

NPTis an independent charity whose mission is to increase charitable giving in American society. The organization provides services that allow donors to establish donor-advised funds. Founded in 1996, NPT has raised more than $2 billion in charitable assets and made upward of 44,000 grants, valued at more than $1 billion, to U.S. and international charities.

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