Two wealthy donors clap at a gala.

Owner Rbert Kraft and Sarah Libbey of the Fidelity Charitable Gift Fund clapped at the New England Patriots Charitable Foundation Community MVP Awards program at Gillette Stadium on Thursday, May 27, 2010.

(Photo: Matthew West/MediaNews Group/Boston Herald via Getty Images)

It’s Time to Move the Money out of Donor-Advised Funds

Because DAFs have no payout requirement, the money often fails to move in a timely way to charities addressing urgent needs.

Last year, we wrote about how donor-advised funds, or DAFs, had become the top recipients of charitable giving in the United States. At the time, we were astounded to discover that DAF sponsors made up 6 of the top 10 and 9 of the top 20 most successful public-charity fundraisers in the country.

We’ve updated the data for 2021—the most recent year for which complete data is available—and the picture has only gotten more stark. Donor-advised fund sponsors now make up 7 of the top 10 and 11 of the top 20 public charities in the United States.

Public charities are nonprofits that rely on a broad base of donors for their revenue —as opposed to private foundations, which are usually created and supported by just one or two major donors.

In contrast to private foundations, DAF sponsors qualify as public charities, and so receive the same preferential tax treatment as working charities.

As we have reported before, DAFs are growing explosively. The assets held in U.S. DAFs have grown by 513% over the past 10 years—rocketing from $38 billion in 2011 to $234 billion in 2021.

And DAFs now rake in 22% of all U.S. individual charitable giving.

Donors can claim substantial charitable tax benefits for their contributions to DAFs, but, because DAFs have no payout requirement, the money often fails to move in a timely way to charities addressing urgent needs.

Through the charitable tax deduction, taxpayers subsidize contributions to DAFs by up to 74 cents on the dollar.

Of particular concern are DAF sponsors that are affiliated with for-profit Wall Street financial corporations. As we have documented, these commercial DAFs provide enormous publicly subsidized tax benefits to their high-rolling contributors while actively encouraging the warehousing of charitable wealth.

And commercial DAFs have been growing explosively. The Fidelity Charitable Gift Fund, for example, has been the most successful charitable fundraiser in the country for the past six years.

In 2021, Fidelity extended its lead by pulling in $15 billion—more than $11 billion more than the top working nonprofit, Feeding America.

We counted the Silicon Valley Community Foundation and the Chicago Community Trust as DAF sponsors because contributions to DAFs made up 93% and 97%, respectively, of their total incoming contributions in 2021.

Some of the operating nonprofits on this list—such as the United Way and Stanford University—sponsor DAF programs as well, but we did not categorize them as sponsors because their DAF programs are relatively tiny compared to their other fundraising.

It is also worth noting that DAFs may have actually done even better relative to working charities than our ranking shows. In previous years, the Chronicle of Philanthropy has made it easy for everyone to evaluate cash contributions by publishing well-researched lists of top-earning non-DAF “cause-driven” charities, but they did not do that in 2021.

So we compiled our current rankings by pulling contribution information from the tax returns of the largest DAF sponsors in the U.S., and then combining that with lists of donations to operating charities from two separate sources: Bloomberg’s ranking of the top-fundraising nonprofit universities and Forbes’ list of the top-fundraising non-university charities.

The Chronicle’s lists only included cash donations, however, while Forbes’ list includes both cash and noncash donations—and that can inflate revenue numbers, particularly for relief organizations. If Forbes’ list had only included cash donations to Feeding America, for example, they would have slipped out of the top 20.

Through the charitable tax deduction, taxpayers subsidize contributions to DAFs by up to 74 cents on the dollar.

This gives us all an interest in making sure that the money stored in DAFs is actually used for the greater good, rather than serving as a tax avoidance vehicle for the wealthy or lining the pockets of commercial money managers.

It’s time to move the money out of DAFs—and we’ve outlined a number of reforms that would make this happen.

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