Account holders of donor-advised funds (DAFs) aren’t like your typical check-in-the-mail donor. They tend to be wealthier, savvier in terms of taking advantage of the tax implications of their gifts, and — according to new research — prioritize their gifts differently than the general donating public.
DAF account holders and general donors shared three of the same top four subsectors to which they gave between 2010 and 2015, but the priorities skewed differently. Education (28 percent of average yearly contribution) was the top subsector for DAF grants followed by public-society benefit (15 percent), religion (14 percent), and human services (11 percent). General donations, by yearly contribution, favored religion (32 percent), education (15 percent), human services (12 percent), and foundations (12 percent) during that same time, according to The Data on Donor-Advised Funds: New Insights You Need to Know, researched and written at the Indiana University Lilly Family School of Philanthropy at IUPUI and published by Giving USA.
The emphasis on education is not simply a product of a bunch of wealthy Ivy-League alumni shelling out major dollars to their alma mater, said Una Osili, professor of economics and associate dean for research and international programs at the Lilly Family School of Philanthropy. Such gifts also encompass K-12 education, after-school programs, and scholarships.
“One thing that we see in high-net-worth donors is they prioritize education,” Osili said. “It’s an interest in education and there is a sense that by investing in education today, you can improve outcomes in the future. It has a now and later benefit.”
The relative popularity of education causes among DAF account holders can also be explained in the relative sophistication of recipients. A university is more likely to have the necessary mechanisms in place to receive a DAF grant as compared to a local church, Osili noted. Aggie Sweeney, chair of Giving USA Foundation, said that she was actually surprised that religion managed to crack the three subsectors for DAF grants given relative technological disparities.
Sweeney also cautioned that while the stereotypical DAF account holder tends to be wealthy, many funds are not particularly large in size and individuals’ attraction to DAFs might sometimes be motivated by convenience and planning as opposed to moving around large assets. Osili added that many financial institutions have lowered the asset threshold of opening a DAF, making the method more accessible to a larger swath of the population.
This played out a little in the data with DAF account holders outside the top 10 funds in terms of Internal Revenue Service’s (IRS) Statistics of Income (SOI) versus those inside the top 10. Support of education was actually more pronounced in grants from smaller funds (33.5 percent to 27.2 percent), while larger funds were keener on giving to religious causes (14.9 percent to 9.6 percent).
The report is unique in its aggregation of information in identifying tendencies among DAF account holders, Osili said. Researchers compiled data from 20,000 organizations. In addition to identifying where DAF grants go, the report shows that only 15 sponsor organizations, those that maintain and operate the funds, have ranked in the top 10 in grants made in any year between 2008 and 2014. Those same 15 organizations currently hold nearly 60 percent of all DAF assets, according to the report.
“That’s something we see elsewhere,” Osili said of the bulk of DAF contributions going to a relative few sponsor organizations, noting that large gifts also tend to funnel toward larger foundations and charities. “Giving tends to be skewed with larger organizations. That is economies of scale, to a point,” she said.
The report also notes that contributions to DAFs fell off in 2016, the last year in which full data is available. Contributions to DAFs saw a 7.6-percent year-over-year increase in 2016, good for about three times the overall growth-rate in giving, but a fraction of the 18.3 annualized rate DAF contributions climbed between 2010 and 2015.
Sweeney attributed DAFs’ milder 2016 to a slowed economy. DAF contributions, like other methods of giving, are tied to increases in wealth, Sweeney said, and 2016 was a year in which the stock market plateaued a bit as compared to previous years. Data is not yet available for 2017 but the assumption is that aggregate DAF figures will have rebounded both due to the rallying stock market and the tax implications that came at the close of 2017. DAF account holders were able to donate large sums and reap the tax benefits for 2017 while actually granting out dollars over the course of the next several years.
“We anticipate that 2017 was a year of significant growth,” Sweeney said. “That would mirror the stock market in 2017.”