Total assets held by donor advised funds across the country rose to $234.06 billion in 2021, an increase of 39.5% over the prior year, and continuing a steady annual increase in values from a total of $112.8 billion in 2017, according to the latest annual report from the National Philanthropic Trust issued in late November. 

The total number of DAFs held by the 995 DAF sponsors surveyed rose to 1,285,801, a 27.6% increase from the number in 2020, also reflecting annual increases up from 401,036 in 2017.  Donors contributed $72.67 billion in new money to DAFs, up 46.6% from 2020, and the amount distributed rose to $45.74 billion, up 28.2% from 2020.  Both contributions and distributions in 2021 were record high numbers since NPT began collecting statistics in 2007. 

The total of assets held by DAFs remains significantly less than the more than $1.3 trillion held by private foundations (only 18%) but the $45.74 in distributions were about 48% of the value of grants of $96.27 billion from private foundations, which usually hover closer to the 5% minimum distribution requirement established by Congress. 

DAF distributions were 27.3% of total assets in 2021, the highest percentage on record.  According to the study, payouts from DAFs have exceeded 20% of assets each year since 2017.  The report says that payouts from what it calls “national charities,” those with a national focus on fundraising and grantmaking, rose to $32.19 billion after contributions of $52.21 billion.  Both figures for 2021 are substantial increases over 2020.  NPT calculates the grant payout rate by calculating the grants made during the year divided by the prior year-end asset value.

NPT expects a continued growth in charitable assets in DAFs but at a slower rate of growth as a result of the volatility in the financial markets.   It also projects continued growth in grantmaking from the DAFs.

While assets and distributions continue to grow, a serious controversy continues about concerns that donors are eligible for deductions to public charities even though grants are not immediately being made to operating charities providing direct services. 

Much of the concern has been centered in the Accelerating Charitable Efforts Act (“ACE Act”) introduced in the Senate by Sen. Angus King (I-ME) and Sen. Chuck Grassley (R-IA) in S.B. 1981 in June, 2021.  Its purpose is to require speedier distribution of DAF assets to operating charities by setting minimum distribution requirements and, in many cases, denying charitable contribution deductions until distributions have been made. The proposal would divide donor advised funds into “qualified” and “nonqualified” DAFs. 

A qualified DAF would be one with a written agreement to terminate in about 14 years from its creation.  A donor would be required to designate a preferred organization for distributions if one has not been made before the donor’s advisory privileges expire.

For a nonqualified DAF, a donor would not be able to claim a charitable contribution deduction until qualifying distributions have been made from the contribution of cash and the proceeds of sale of property contributed to the fund.  The deduction would be limited to the amount of the distribution.  If contributions were not distributed for 50 years, they would be subject to a special excise tax on the sponsoring organization.

Special rules would also be applied to DAFs for qualified community foundations.  A qualified community foundation would be one serving the needs of a particular geographic community that is no larger than four states and holds at least 25% of its assets outside of DAFs.  For a qualified community foundation DAF, the donor/advisor must have less than $1 million in assets under advisement throughout the foundation and must distribute at least 5% of the value annually.  No deduction would be allowed for gifts of non-publicly traded stock until the stock has been sold.

In addition, the Act would prevent a DAF from counting a distribution to a private foundation as part of a 5% minimum distribution requirement unless the private foundation distributes the transferred funds to an operating charity within the same year.

A separate section of the Bill would limit the ability of the recipient charity to count a DAF gift in the recipient’s public support calculation.  Where the original donor is identified with the grant, the grant would be deemed to have come from the original donor.  Where the original donor is not identified, the support would not be deemed from a public charity, but would be combined with all other unidentified gifts received from DAFs during the year and treated as a single grant received by a single donor.  This would significantly limit the amount of public support compared to the current treatment of such grants as coming from a public charity and being entirely included in the numerator of the public support fraction.

A companion bill (HR 6595) was introduced in the House in January 2022 by Rep. Chellie Pingree (D-ME) but neither version has moved in the legislative process.  They are being watched by both sides, however, to see if there will be new legislation on the issues.

YOU NEED TO KNOW

There are serious headwinds for the use of donor advised funds, but there doesn’t seem to be any consensus yet on what, or whether, anything should be done