How has Donor-Advised Fund Giving Changed Since The Pandemic Began?

The year 2020 heralded some of the greatest wealth inequality in this country in many years. While millions of jobs were lost and families evicted, U.S. billionaire wealth increased by $1.6 trillion or 55% since the pandemic began. That same number, 55%, represents the increase in people served by Feeding America food banks since before the pandemic began. Many have watched our network of social services charities respond during this crisis, as well as the donors these charities rely on for funding. 

An increasing segment of charitable giving is through Donor-Advised Funds (DAFs) - now representing 12.7% or one in eight charitable dollars given each year. Who are these donors - are they all ultra-wealthy? The National Philanthropic Trust (NPT) 2020 Donor-Advised Fund Report estimates the average value of these accounts at $162,556, but averages tend to be inflated by extreme outliers. The Fidelity Charitable 2020 Giving Report shows that just 9% contain more than $250,000, and 54% contain less than $25,000. So while much of the participation is coming from the middle class, most of the $141.95 billion in DAFs is controlled by a very small group of wealthy people. The decision to distribute funds from a bulging DAF to charitable organizations during a humanitarian crisis was under close public scrutiny this year. 

Indeed, the call to give resounded broadly with these donors, and grantmaking from DAFs to qualified charities rose 29.7%, from $6.41 billion in the first six months of 2019 to $8.32 billion for the same period in 2020. The total number of DAF grants increased by 37%. It’s only natural that amid the flood of alarming news headlines and urgent solicitations for help, those with charitable dollars already set aside decided to step up. However, Jennifer and David Risher decided to promote and incentivize the idea.

They started a challenge called #HalfMyDAF, in response to the glut of stagnant dollars in Donor-Advised Funds. With a pool of matching dollars to spur individuals to liquidate 50% of their DAF by last October, their goal was to “to inspire giving and transform DAFs from enormous parking lots into funding superhighways.” They were able to rally $8.6M last summer with a matching pool of $1.4M, and have set their sights higher in 2021 with a matching pool of $3.1M. 

Will this movement gain momentum? It certainly makes a sound argument. In spite of an unprecedented global catastrophe, there remains a dragon’s hoard of $142B in dedicated charitable accounts that continue to earn investment returns by brokers like Fidelity and Schwab. There is no requirement to distribute a certain amount each year, unlike private foundations that mandate 5% - although DAF’s consistently report payout rates above 20%. The tax deduction has already been rewarded, without a dollar out the door to a local school, food bank, or summer camp. If all of the DAFs in the United States were emptied today and given to qualified charities, it would represent 31% of all charitable giving in a typical year - a clog in the pipeline, or “superhighway” as the Rishers refer to it.

It’s good to see philanthropists taking up the banner for DAF giving, but there is certainly a need for nonprofits to advocate for themselves and spread awareness. One key difference with soliciting individuals with Donor-Advised Funds is that they have less time-sensitivity about making year-end gifts, since they have already claimed their tax break. However, we are creatures of habit, and many charitable distributions from DAFs are still processed in December. This could be partially attributed to the surge of charitable appeals in the fourth quarter, and some organizations are seeing a positive response after including “this charity is eligible to receive funds from your DAF” in their solicitations. 

Careful attention and stewardship for these DAF donors is important, because some are set up to make distributions anonymous. I have experienced a few instances of asking for a year-end gift renewal and being told that a donation was made months ago from a DAF, but we were unable to properly attribute it to the right individual and follow up in a timely manner. Having a candid conversation about a donor’s DAF, how they like to use it and discuss it - this level of clear communication can potentially strengthen the relationship and fundraising results. Philanthropy is changing, and fundraisers cannot neglect their opportunity to influence this trend as they strive to serve their nonprofit mission.