It’s time to move the money: independent research on donor-advised funds

Urgent need for independent DAF research

Over the past few months, we have observed private foundations and DAF sponsors mount a defense of the philanthropic status quo. They attacked proposals such as the bipartisan Accelerating Charitable Efforts Act (ACE Act), sponsored in the U.S. Senate by Angus King (I-Maine) and Charles Grassley (R-Iowa), and the Patriotic Millionaires’ Emergency Charity Stimulus— both of which would require CFOs to have some form of payment requirement.

Some DAF sponsors, now on the defensive, select data on DAF activity in their own reports. For example, DAF sponsors frequently tout the amounts of money coming out of DAFs, but not the amounts going into them. Chronicle of reported philanthropy:

Fidelity and Vanguard released data for 2021 on grantmaking, but did not provide information on how much money was paid that year into the accounts they manage, nor would they provide their asset levels. totals for 2021. In response to a request for that data, Fidelity spokesman Steve Austin said Fidelity would only release “verified” numbers, and those wouldn’t be released until months later, in forms IRS taxes that Fidelity Charitable is required to file.

Fidelity reports that they gave 13% more in grants in 2021 than in 2020. But what they don’t say is that, according to our calculations, they brought in 26% more in contributions.

DAF sponsors also frequently report that their disbursement rates exceed those of private foundations. We argue that this is not an appropriate comparison, since DAFs were never intended to hold funds in perpetuity. Even if a CFO distributes 20% of its assets in a year, this means that 80% of the funds remain in storage – a dismal performance for an instrument supposed to transfer funds quickly to charity.

All of this makes it clear that there is an urgent need for further independent research on DAF activity.

Overview of three DAF studies

The independent research papers below bring needed clarity to the situation. They explore several of the ways in which DAFs can be used to divert needed funds from active charities and explain the public interest in correcting it.

Over $1 billion in DAF grants were disbursed to other commercial DAFs in 2019 (August 19, 2021)

In an analysis of commercial DAF sponsor tax returns, we found that in 2019 alone, at least $1 billion in commercial DAF grants went to other commercial DAFs. This is a huge amount of money flowing between vehicle donations rather than being given out directly to charity. It also skews the remittance rates reported by these institutions and makes it nearly impossible to assess whether DAFs are actually distributing revenue to charity in any meaningful way. In this article, we explore the scale of DAF to DAF donations and highlight notable examples.

Private foundation giving to commercial DAFs (March 24, 2022)

Private foundations are currently permitted to make grants to DAFs and count them towards their annual charitable distribution requirements. We reviewed private foundations’ 2016-2018 tax returns filed electronically to see how much of their contributions went to the 45 largest domestic commercial DAF sponsors in the United States, including those affiliated with wealth management firms such as as Fidelity Investments and Goldman Sachs. We found that private foundation grants to commercial DAFs averaged $737 million per year from 2016 to 2018, and more than $934 million in 2018 alone.

Large community foundations have become heavily dependent on donor-advised funds (March 24, 2022)

Community foundations collect donations from the public and distribute these much-needed funds to local charities. But community foundations are increasingly offering donors the option to give through DDF rather than foundation discretionary funds. outgoing grants. And large community foundations are much more dependent on CFOs than smaller ones; for the larger ones, the ADF represent almost half of their assets and three-quarters of their inflows.

Further background reading on DAFs

The scale, growth and nature of DAF giving makes it more important than ever to improve DAF governance and greater transparency. The documents below provide a more in-depth look at the creation, growth and effects of DAFs. They also present a variety of policy proposals designed to ensure that DAFs provide an adequate return to the taxpayers who subsidize them, that DAFs do not withdraw an undue amount of philanthropic revenue from active charities, and that DAF donors receive impartial advice. when making their charitable decisions.

Fixing what’s broken with donor-advised funds

This guidance note outlines the public interest in correcting DAF design flaws, presents policy recommendations that would do so effectively, and provides estimates of the additional charitable revenue that would result from these solutions.

Wealth storage

This comprehensive report documents the dramatic expansion of DAFs, explores the risks that unregulated DAFs pose to the public interest and the charitable sector, and offers several policy recommendations to mitigate their risks.

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