Donor-Advised Funds and the Shifting Charitable Landscape: Why Congress Must Respond

Abstract

In recent years, donor-advised funds (DAFs), historically a relatively minor part of American philanthropy, have taken on an outsized importance. The dramatic growth of donor-advised funds has been driven not only by the inherent attractiveness of DAFs, but also by the profit margins of the financial services industry and the donors’ financial advisors. As more and more money rushes into DAFs – as of 2013, roughly 7% of all charitable gifts from individuals – the operating nonprofits that supposedly are the beneficiaries of donor-advised funds are losing out. At a time of higher demand for services and reduced funding, nonprofits are looking to individual donors for financial support, but increasingly donors are diverting their gifts into DAFs. This might be acceptable if DAFs were inspiring increased charitable giving, but there is little evidence to support that claim. And, because there is no mandated spend-down requirement, far more money is flowing into donor-advised funds than is flowing out into the charitable community. Wise public policy demands that Congress act to mandate an account-by-account spend-down of donor-advised funds within 15 to 20 years of the date of donation, and to prohibit private foundations from meeting their 5% distribution requirement through grants to DAFs.