Donor Advised Funds -The “Big” Picture

Take-Away: In 2021 donor advised funds made up seven of the top 10 charities to which contributions were made by the general public. The fact that these top donor advised funds are sponsored by for-profit Wall Street financial corporations is disconcerting to many in Congress.

Background: Prior reports over the past few years have shared that we may soon be facing a future where donor advised funds (DAFs) will be more closely regulated by Congress, or for which a current charitable income tax deduction will be denied. The concern of many in Congress is that the donor to a DAF receives an immediate federal income tax charitable deduction, but there is no corresponding obligation on the part of the DAF sponsor to immediately release those contributed funds to publicly supported charities. The supposition is that the distributions from the DAF will help the charity carry out its charitable purpose, while indirectly relieving the federal government of its obligations to assist the public, i.e., federal funds can be diverted elsewhere and not to the supported charity. A recent study in Bloomberg demonstrates just how popular DAFs have become. The following numbers are computed through 2021 which is the most recent data on charitable giving in the United States.

Big DAFs: The 10 U.S. Public Charities that received the most public contributions in 2021 follow. Donor advised funds are identified in bold type.

1. Fidelity Charitable Gift Fund- $15.3 billion
2. National Philanthropic Trust– $8.6 billion
3. Schwab Charitable Fund- $7.1 billion
4. Vanguard Charitable Endowment Program- $4.3 billion
5.   Feeding America- $4.1 billion
6. Silicon Valley Community Foundation- $4.0 billion
7. United Way Worldwide- $2.8 billion
8. American Endowment Foundation- $2.6 billion
9. St. Jude’s Children’s Hospital- $2.4 billion
10. 10.Morgan Stanley Global Impact Fund- $2.4 billion

The Fidelity Charitable Gift Fund has been the most successful charitable fundraiser in the country for the past six years.

DAF Growth: The growth in DAFs is explosive. The assets held in U.S. DAFs have grown by 513% in just the past ten years, going from $38 billion in 2011 to $234 billion in 2021. Restated, DAFs now take in 22% of all U.S. donors’ annual charitable giving.

Congressional Concern: The concern of many in Congress is that these big DAF sponsors are affiliated with for-profit Wall Street Financial Corporations. These commercial DAFs provide enormous publicly-subsidized tax benefits to their high-income donors while actively encouraging the warehousing of that charitable wealth to an unknown future date. The concern is that the Wall Street sponsor has no incentive to encourage distributions from the DAF’s that they manage. That is why some suggestions for legislative changes have been floated to require distributions within a finite period after the contribution is made, e.g. 5 years, or suggestions to deny immediate charitable deductions if funds are tied up for long periods of time in a DAF, e.g. 40 years.

Conclusion: Those in Congress want to continue the public to contribute to charities, including DAFs. They just want to the DAF contributions working for the non-profit community as opposed to being warehoused for indefinite periods of time, controlled over that duration by commercial Wall Street financial corporations.