High Number of Michigan DAFs Funded But Inactive

Distributions from donor-advised funds (DAFs) might have ticked up during 2020, but a study of DAFs based in Michigan shows a significant amount of their holdings are being “parked” — not distributed to nonprofits.

Whether wealth is being parked is a matter of interpretation. According to the study, between 2017 and 2020, 60% of Wolverine State DAFs made a distribution, while only 40% received a contribution from participants.

That said, one in 10 of the more than 2,600 Michigan DAFs reviewed received contributions but did not make any distributions, according to Analysis of Donor Advised Funds from a Community Foundation Perspective, a study commissioned by the Council of Michigan Foundations (CMF).

The study’s authors never claim Michigan DAF use is projectable to the United States — DAFs make up a smaller percentage of Michigan community foundation endowments than is seen nationwide. And even though Michigan is the tenth-largest state when ranked by population, chances are these results are not projectable to the rest of the nation. They may, however, be directional.

Examining the activity rates of all Michigan DAFs can be misleading, however. While one in four DAFs had no activity (distribution or contribution) during any given year between 2017 and 2020, and 10% were inactive for the entire period, those DAFs accounted for less than 5% of the state’s DAF assets.

The bigger players, however, were more active. The 59% of DAFs that were active during each of the years examined held 82% of DAF assets for the state. These received 96% of all contributions and made 88% of all the distributions.

Were these distributions enough? During 2020, just over 2 in 5 (43%) paid out 5% or more of their balance, and just under one-third released 9% or more. Perhaps disturbingly, those single-digit distribution figures represent increases in funds released.

Overall, two-thirds of Michigan DAFs made distributions in both 2019 and 2020, with 35% increasing distributions in 2020, a year when the coronavirus pandemic and racial justice concerns highlighted the need for nonprofit services.

That year apparently spurred some DAFs into action. During 2020, almost 20% of the dollars distributed by DAFs came from those that had made no distributions at all during the previous year. Overall, distributions from Michigan DAFs rose to a median level of $9,750 in 2020 from a median of $8.500 in 2019.

The report is the third in a series of research briefs on payouts from the Council of Michigan Foundations. The first, released in December 2020, examined the private foundation payout landscape. The second, issued in early 2021, reviewed payout rates of community foundations both statewide and nationally, as well as in comparison to private foundation rates.

The full report is available here: https://bit.ly/3hnwWA4