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Report Finds Charities Lost $300 Billion to Donor-Advised Funds over 5 Years

Donor-advised funds (or DAFs) currently hold $142 billion in assets, and charitable giving is increasingly channeled through these intermediaries. But despite their growing popularity over the last 30 years, DAFs have directed billions of dollars away from charities that would have otherwise benefitted from direct contributions.

A new report from the Boston College Law School Forum on Philanthropy and the Public Good puts a price tag on that shortfall: $300 billion over a five-year timeframe, based on a comparison of contributions and receipts from before commercial DAFs entered the market in the late-1980s, to the mid-2010s. 

The report’s authors, Boston College law professor Ray Madoff and University of California San Diego economics professor James Andreoni, compared the total amount of individual giving between 1987 and 1991 to the total that was actually received by charities from 2014 to 2018. 

While charities received around 92 to 95 percent of individual giving in the 1987 to 1991 timeframe, they only received 71 to 74 percent of individual giving from charitable donations between 2014 and 2018. 

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The report also found that while charitable giving by individuals has remained stable over the last 40 years at around 2 percent, the amount of individual giving flowing into DAFs topped 13 percent in 2019. That’s a substantial increase from 4 percent in 2007, when donor-advised funds began reporting contributions. 

Meanwhile, contributions to private foundations accounted for 15 percent of the value of individual giving in 2019, jumping from 5 percent in 1991. Combined giving to private foundations and DAFs accounted for 28 percent of individual giving in 2019, a substantial increase from 5 percent in 1991.

The study also noted that private foundation assets grew by 600 percent in the last 28 years, from $165 billion in 1991 to $996 billion in 2019, per Federal Reserve System data. Citing National Philanthropic Trust data, the report showed that DAF assets grew from $32 billion in 2007 to $142 billion in 2019, representing a 400 percent increase. 

“Though more funds are flowing into, and growing in, private foundations and donor-advised funds, there is no evidence that charities have benefited from this trend,” Madoff and Andreoni wrote in the report’s conclusion

Last December, Madoff and Andreoni launched the Initiative to Accelerate Charitable Giving, a collective of philanthropists, foundations, nonprofits, activists and other leaders in the sector. They aim to create policy reforms that would incentivize DAF-holders to distribute money to nonprofits rather than holding it after they’ve secured their immediate tax deduction for contributing. 

Current laws don’t require DAFs to distribute any money to charity, while foundations must distribute at least 5 percent of their assets annually. However, some foundations fulfill that payout requirement through giving to DAFs, thereby continuing the cycle and directing money away from charities. 

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Shannon Cuthrell

Shannon Cuthrell is a journalist with a background covering business, technology and economic development. She has written for Business North Carolina magazine, WRAL TechWire, Charlotte Inno and EE Power, among other publications.

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