Donor-advised funds (DAF) have become one of the fastest-growing vehicles for philanthropy in the past decade. They also have become a lightning rod in the debate about charitable giving, described by skeptics as a “Wall Street takeover of charity.”
Other critics argue that that donors can receive a tax deduction for contributions to their DAF account but the money can potentially be years away from going to an actual charity. There also can be issues of transparency when it comes to donors and tracking specific distributions and contributions.
Danielle Vance-McMullen and Dan Heist join this episode of the Fresh Research podcast to discuss their recent paper, “Understanding Donor-Advised Funds: How Grants Flow During Recessions,” in which they examine payout rates and flow rates of DAFs over the past decade. A .pdf of the 51-page paper can be found here and executive summary here.
The paper compiled Internal Revenue Service (IRS) data over a 10-year period (2007-2016). Almost 1,000 DAF sponsors were examined among three categories: national, community foundations, and special issue. Growth during this time has been dominated by commercial DAF sponsors but community foundations often feature the oldest DAFs.
Vance-McMullen, Ph.D., is an assistant professor in public and nonprofit administration at the University of Memphis. Heist recently completed his Ph.D. at the University of Pennsylvania and will be a professor at the University of North Carolina-Wilmington.
Grant distributions via DAFs is resilient during a recession, according to the authors, either “remaining constant or decreasing only slightly even when contributions and asset levels both drop precipitously.” The median flow rate was 85 percent. Median payout rates and flow rates vary by sponsor types and sizes of DAF sponsors. National sponsors had the highest payout rate, an average 22 percent, but lowest flow rate, about 70 percent. Community foundation DAFs had median payout rates of 10 percent while single-issue charities had the highest.