How Donor-Advised Funds Are Changing Philanthropy

Donor-advised funds (DAFs) are changing how donors support charity. An increasingly popular financial structure for making donations, new DAFs are established with every passing year. But even as they come to represent a larger slice of the charity pie, DAFs continue to be, for most people, a mystery.   

This post will be the first in a series of posts about DAFs, as so much of their context and benefits need to be unpacked. In this post, we’ll look at the nuts and bolts of how DAFs work and why they’re gaining in popularity. In future posts, we’ll dive deeper into their benefits, engage in some of the debates of why DAFs are controversial to some, and explore how and why Charitable Impact believes the DAF structure benefits donors of every size and experience level.

How a DAF works

The DAF structure is growing in popularity, and here’s how they operate.

In brief, a donor donates assets into a DAF and collects a tax receipt immediately. This action is a gift in the eyes of the law. The tax receipt is for the fair market value at the time of the donation.

Each DAF is sponsored by a registered charity. In Charittable Impact’s case, it’s the CHIMP: Charitable Impact Foundation (Canada), and that’s who issues the tax receipt.

At most DAFs, the assets one can donate aren’t limited to cash. This means that people can plan to give in either the most tax effective or easiest way. With Charitable Impact, people can donate public securities, real estate, privately held company shares, art, and any other asset that the board of directors is willing to accept and able to value. Charitable Impact is the first Canadian DAF to accept a donation of cryptocurrency.

Post donation, when the donor is more ready, they make recommendations on which charities or causes they want to fund with the charitable dollars in their DAF. So by using a DAF, a donor can support many charities of their choosing with one donation into their DAF.

However, not all donors have assets other than cash to give away. And that’s OK. No matter what you donate, the DAF empowers donors of all sizes to be able to separate the action and planning of making a donation (in return for the tax receipt) from the action and planning related to which exact causes or charities to give to. In short, DAFs make it easier for donors to be more strategic with their charitable impact. And this is primarily why Charitable Impact believes the DAF is a great product for donors.

The growing popularity of DAFs

Increasingly, DAFs provide donors and their advisors the financial tools that we’re accustomed to with online banking and other online platforms. So much of the strategic donation and allocation process has historically been quite laborious and not user-friendly. Charitable Impact is the first DAF in Canada to bring it into the digital age, and provide easy-to-use donation tools and dashboards. With Charitable Impact it is very easy to start and manage your DAF.

Given the benefits of using DAFs, it’s only natural that they’ve surged in popularity.

Between 2010 and 2015, the number of DAFs in the USA grew from 180,000 to 270,000. They now considerably outnumber private foundations.

As of writing, 2017 numbers for all DAFs haven’t been released. But from 2015 to 2016 alone, the total assets held by DAFs grew 9.7%. In 2016, more than $85 billion USD in assets was held by DAFs.

More recently, 2017 saw significant growth for one major DAF provider, the National Philanthropic Trust (NPT). Their contributions were up 41 per cent in 2017—from $1.7 billion to $2.4 billion USD—with the number of accounts growing from 5,154 to 6,430.

Meanwhile, Fidelity Charitable, the largest DAF provider in the USA, also saw growth. In 2017, their number of new donors increased 83 per cent. New assets held by Fidelity Charitable rose by $8.5 billion—up from a $6.6 billion increase in 2016.

In 2015, Fidelity Charitable surpassed United Way to become the largest distributor of charitable assets in the USA.

While DAFs have been growing in popularity north of the 49th Parallel, there are few statistics on the amount of donations being processed in Canada. However, Charitable Impact alone has used the DAF structure to facilitate more than $360 million in charitable donations, and we’ve seen steep growth in the past several years.

As strategic, higher impact giving becomes an increasingly important mandate for donors and as more donors become savvy to the tax efficiencies gained from well planned donations, DAFs will continue to grow in popularity with donors who want to make an impact. The popularity of DAFs is only increasing, and Charitable Impact is leading the charge in Canada.

Stay tuned for our next post in our series on DAFs, where we’ll explore the differences between private foundations and DAFs, and why we believe DAFs are the better option for most high net worth donors. After that, we will also explore why DAFs make sense for the average donor.

If you have any burning questions regarding DAFs or how Charitable Impact can help you in your charitable giving, don’t hesitate to reach out to us at [email protected].