Tag: donor-advised fund

Over the last few years, donor-advised funds, or DAFs, have ballooned in popularity as charitable giving vehicles for the ultra-wealthy. They come with generous tax benefits, have few disclosure or payout requirements and require less oversight on the donor’s part because the funds are sponsored by public charities that help manage them (and technically have final say over where the money goes). A new report released Tuesday by National Philanthropic Trust, one of the country’s biggest sponsors of DAFs with $30 billion in assets under management, shows just how much DAF adoption has grown, with record highs for both grants paid out and contributions received last year.

In 2022, contributions to DAFs throughout the U.S. hit a new high of $86 billion, a $8 billion increase from the prior year. Charitable gifts paid out by DAFs also hit a new high of $52 billion, up from $48 billion in 2021, according to the National Philanthropic Trust (NPT) report. The study looked at 1,151 charitable organizations that sponsor DAFs, and data is sourced primarily from the IRS Form 990, the annual information return that 501(c)(3) charities are required to file. Assets held in DAFs shrunk to $229 billion in 2022 from $231 billion the year before, largely due to a stock market downturn (it’s common for donor-advised funds to hold shares of publicly-traded stock).

“This is the most interesting report we’ve had in a long time,” says Eileen Heisman, CEO of National Philanthropic Trust. “It comes on the heels of two really aggressive years of growth and grantmaking. During the pandemic, and when the market was up, people were at home thinking about the world and what they wanted to do about it.” The 2022 report reflects the market correction after its 2021 boom, and Heisman says she’s pleasantly surprised that grants and contributions are both still up from 2021—and that assets held in DAFs only shrunk by around 1%.

DAF usage is especially common among the ultra-wealthy. Many billionaires including Tesla CEO and the world’s richest person Elon Musk, Google cofounder Larry Page, Meta cofounder Mark Zuckerberg, WhatsApp cofounder Jan Koum, philanthropist MacKenzie Scott and hedge fund tycoon Ray Dalio route some of their giving through the tax-advantaged entities. (Of the high-net-worth individuals surveyed in a 2023 Bank of America report on Charitable Giving by Affluent Households, tax considerations were their top reason for using DAFs, with 63% of them citing them as a reason.)

Page, notably, has one of the world’s biggest private family foundations, the Carl Victor Page Memorial Foundation (named after his late father), with $6.7 billion in assets per its latest filing in 2021. But nearly all of the money that foundation gives away goes to DAFs. In the last decade, Page’s foundation has funneled more than $700 million into three DAFs: one at NPT, one sponsored by Vanguard and one sponsored by Schwab, according to IRS filings. Once those assets moved into Page’s DAFs, the public has no visibility into whether they were actually paid out. As a result, it’s not clear which nonprofits Page is ultimately backing—if he’s supporting any at all. A representative for Page did not yet respond to a request for comment.

MacKenzie Scott similarly has DAFs at three sponsoring financial institutions, including NPT and Fidelity, Puck reported earlier this year, and has likely doled out much of her $14.4 billion-plus in grants via those entities. Her funds likely entered the DAFs as donations of Amazon shares she got as part of the 2019 divorce settlement with Jeff Bezos. By donating the shares to a DAF, she would’ve been able to avoid paying capital gains taxes that would have been owed if she sold those shares.

Koum, for his part, is one of more than a dozen billionaires who has created a DAF at a Bay Area sponsor that’s been popular among tech founders, the Silicon Valley Community Foundation.

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In total, estimated charitable giving for 2022 including that from individuals, companies, bequests and foundations totaled $500 billion, according to a 2023 report from Giving USA. That means grants from DAFs now amount to around 10% of all giving and may well keep growing. Contributions to DAFs are up 133% and grants made by DAFs are up 119% from five years ago, according to the NPT report. And according to the Bank of America study, one in 20 affluent households (defined as having an annual income of more than $200,000 or assets of at least $1 million) used a DAF for their giving, and of those that made distributions in 2022, the contributions accounted for 42% of their total giving.

Compared to private charitable foundations, which currently hold approximately five times the assets (just over $1 trillion) that DAFs do, contributing to a DAF results in a higher tax deduction (30% vs. 20% of adjusted gross income for stock gifts, generally speaking). Both entities are irrevocable, though, meaning that donors can’t remove assets they put into the giving vehicles. Both entities also allow a donor who gives shares of a public company to avoid capital gains taxes on dividends, stock sales or other similar income. Notably, DAFs have no annual payout requirements—compared to private foundations’ requirement that they pay out 5% of the fair market value of assets per year—and don’t disclose grants on an account level, only on the sponsor level, which often pools assets of hundreds if not thousands of accounts.

That leaves the public to speculate where donations like stock gifts that show up in Securities and Exchange Commission filings end up. One question: Ebay billionaire founder Pierre Omidyar made yearly gifts of at least 9.6 million eBay shares between 2005 and 2020, shares now worth $7.7 billion if they haven’t been sold—but we don’t know where they landed. A DAF perhaps? (A spokesperson for Omidyar did not respond to a question about how much of Omidyar’s assets are held in DAFs, but he does publicly have at least one, based in his home state and sponsored by the Hawaii Community Foundation.)

Most billionaire donors give through multiple giving vehicles, NPT’s Heisman says: “They diversify their giving, and probably have a private foundation, multiple donor-advised funds, charitable remainder trusts, charitable lead trusts … and probably also still do checkbook philanthropy.”

Meta CEO Zuckerberg is a prime example of this. Zuckerberg and his pediatrician wife Priscilla Chan give through an umbrella entity dubbed the Chan Zuckerberg Initiative, which combines an LLC with a private foundation and a donor-advised fund. In an uncommon show of transparency, CZI lists all of its grants made through each of the three entities, including the DAF, on its website. (MacKenzie Scott also lists all her donations on her Yield Giving website.)

Critics of DAFs have been trying to increase reporting and payout requirements for the entities for years but have made little progress. Notably, billionaire former hedge fund founder and energy executive John Arnold spoke out against DAFs in a Twitter thread highlighting statistics at community foundation-sponsored DAFs in Michigan using scare quotes around DAF “donors.” Arnold referenced a Council of Michigan Foundations study that revealed 57% of DAF accounts paid out less than 5% (the minimum required distribution by private foundations) in 2020, and that 35% of DAFs at Michigan community foundations did not make a single distribution to charity that same year.

Those who have spoken out against DAFs have also raised concerns that large DAF-sponsoring organizations like Fidelity, Vanguard and NPT are trying to shape a positive narrative around DAFs by publishing reports like NPT’s that have numbers widely up for interpretation. For example, the $52 billion in grants from DAFs in 2022 include grants from DAFs to other DAFs, which can happen when very wealthy donors try to pool their DAF funds into a “giving circle,” or when a donor wants to give a big gift and moves their funds held in different DAFs all into one account, Heisman acknowledges. Or donors sometimes decide to switch DAF providers. That can easily amount to billions of dollars in “grants” that aren’t actually making it to those in need, but there’s no clear way to measure it.

In the meantime, because DAFs are easy to set up and provide attractive tax deductions, it’s very likely that assets will keep flowing into these charitable accounts.