Donor-Advised Funds: Assets Surge, But Giving and Grantmaking Slip

Donor-advised funds (DAFs) have reached a significant milestone, with assets surpassing $250 billion. However, a new report by the National Philanthropic Trust reveals a mixed picture, as contributions to and grants from these funds have both decreased. This article explores the reasons behind these trends and their implications for charitable organizations.

Donor-advised funds have experienced remarkable growth in recent years, with assets increasing by 9.9% to $251.5 billion in 2023. This growth is largely driven by the tax advantages these funds offer, allowing donors to make tax-deductible contributions while retaining control over how the funds are distributed.

However, the report also highlights a decline in contributions to DAFs, which fell by 21.7% to $59.43 billion. This decrease can be attributed to several factors, including market volatility and inflation. The bear market between January and October 2022 likely deterred donors from contributing to DAFs, as seen in the report's data spanning roughly 18 months. Additionally, the 4.1% inflation rate in 2023 may have reduced the real value of grants, although assets in DAFs grew significantly.

Despite the decrease in contributions, grantmaking from DAFs remained relatively steady, with a 1.4% decline to $54.77 billion. This indicates that donors are still committed to supporting charitable causes, even during economic uncertainty. However, critics argue that wealthy donors are "warehousing" money in DAFs to get tax breaks without doling out the money to struggling charities, which could also contribute to the decrease in contributions.

The payout rate for DAFs, which measures grants as a percentage of total assets, remained relatively flat at 23.9%. This indicates that donors are still committed to supporting charities, even during economic uncertainty. The stability of the payout rate, coupled with the growth in DAF assets, suggests that donors view DAFs as a reliable vehicle for philanthropy, regardless of market conditions.

Grantmaking from DAFs varied by the type of sponsoring organization. National sponsoring organizations, such as Vanguard Charitable and Fidelity Charitable, saw grants from DAFs decrease by 7%, while grants from community foundations increased by 3.1%. This suggests that community foundations are more actively moving money to charities, while national sponsors may be less responsive to the needs of charitable organizations.

The decrease in contributions to DAFs and the relatively stable grantmaking raise questions about the future of these funds. While DAFs continue to attract new donors, with the number of new accounts growing by 0.6% to 1,782,281 accounts, the decline in individual charitable giving, as reported by GivingUSA, may contribute to the decrease in DAF contributions. The decline in individual giving, which fell by 1.1% to $304.38 billion in 2022, may indicate that donors are becoming more cautious with their giving, even as they remain committed to supporting charitable causes.

In conclusion, the growth in DAF assets and the relatively stable grantmaking suggest that donors continue to view these funds as a reliable vehicle for philanthropy. However, the decrease in contributions raises questions about the future of DAFs and the need for greater transparency and accountability in the sector. As DAFs continue to grow in popularity, it is essential for donors, charitable organizations, and policymakers to work together to ensure that these funds are used effectively to support the causes that matter most.

The table below illustrates the growth in DAF assets, contributions, and grantmaking, as well as the payout rate, from 2022 to 2023.

| Metric | 2022 | 2023 |
| --- | --- | --- |
| Assets (in billion) | $228.9 | $251.5 |
| Contributions (in billion) | $75.5 | $59.43 |
| Grants (in billion) | $55.5 | $54.77 |
| Payout rate (%) | 24.1 | 23.9 |