Donor-Advised Funds’ Surge May Have Cost Charities $300B Over 5 Years: Study

What You Need to Know

DAFs allow donors to take tax deductions now on money to be given to charity in the future.
Charities receive a smaller share of donated money now than they did before the introduction of DAFs.
The amount of assets in DAFs and private foundations has grown dramatically in the past 30 years.

New research from the Boston College Law School Forum on Philanthropy and the Public Good has turned up no evidence that the expansion of donor-advised funds has led to an increase in individual charitable giving, which has remained largely constant as a percentage of disposable income.

Indeed, DAFs’ proliferation may have come at the expense to charities of as much a $300 billion between 2014 and 2018, researchers found.

The study was conducted by Ray Madoff, a law professor at Boston College, and James Andreoni, who teaches economics at the University of California San Diego.

Madoff and Andreoni found that while individual giving has remained largely constant, it has shifted significantly toward donations to DAFs and private foundations, and away from direct giving to charities.

Combined giving to these vehicles rose from 5% in 1991 to 28% in 2019, an increase of 460%.

The value of assets in private foundations and DAFs has increased significantly over the past 30 years, from $165 billion in 1991 to $996 billion in the former, and from $32 billion in 2007 to $142 billion in the latter.

“Together these figures show the extent to which contributions to private foundations and donor-advised funds are remaining and growing inside these vehicles rather than being distributed to charity,” Madoff and Andreoni write.

DAFs allow donors to set aside money to give to charity in the future. Some use the accounts to ”bunch” charitable contributions into a single year for tax planning purposes. There is no minimum annual distribution from DAF accounts.

The professors’ research showed that in the five-year period prior to 1991 when the first commercial DAF rolled out, charities received on average 94.1% of all individual giving.

By contrast, in the years 2014 to 2018 (the most data available), charities received total donations — including direct giving and grants from private foundations and DAFs — equal to between 71% and 75% of total individual giving.

The researchers’ analysis showed that if charities had received donations at the pre-commercial DAF rate of 94.1% of individual giving, they would have received an additional $300 billion over those five years.

In an interview with The Chronicle of Philanthropy, Madoff said her and Andreoni’s research showed how the growth of DAFs and private foundations has affected “working charities,” nonprofits other than private foundations and donor-advised funds.

“This report is a novel approach in that it looks to actual receipts by charities instead of reported distributions by donor-advised fund sponsors,” she said.

The researchers’ data came from Giving USA, National Philanthropic Trust and data analysis of 990 tax forms by DataLake.