Understanding Donor-Advised Funds: How Grants Flow During Recessions

Abstract

Donor-advised funds (DAFs) are becoming increasingly popular in the United States. DAFs receive a growing share of all charitable donations and control a sizable proportion of grants made to other nonprofits. The growth of DAFs has generated controversy over their function as intermediary philanthropic vehicles. Using a panel data set of 996 DAF organizations from 2007 to 2016, this article provides an empirical analysis of DAF activity. We conduct longitudinal analyses of key DAF metrics, such as grants and payout rates. We find that a few large organizations heavily skew the aggregated data for a rather heterogeneous group of nonprofits. These panel data are then analyzed with macroeconomic indicators to analyze changes in DAF metrics during economic recessions. We find that, in general, DAF grantmaking is relatively resilient to recessions. We find payout rates increased during times of recession, as did a new variable we call the flow rate.

Understanding the Donor-Advised Fund Giving Process: Insights From Current DAF Users

“…Moreover, the aggregated payout rates include DAF-to-DAF transfers, which Giving USA Foundation (2020) reported to be 4.4% of all grants. Heist and Vance-McMullen (2019) found evidence that DAFs may be used as pass-through vehicles, where money is moved in and out within the same year. However, the extent to which individual donors stockpile money or use DAFs as pass-through vehicles is unknown.…”

“…DAFs change the flow of money from donor to nonprofit, disrupt traditional fundraising relationships (Rooney, 2017), and desynchronize previously synchronous elements of charitable giving decisions. Heist and Vance-McMullen (2019) provided a model in which donors first contribute cash or assets into a DAF and receive a tax deduction upfront; second, the donated assets are managed and invested by the sponsor organization; and third, donors advise the sponsor to grant out of the DAF account to another charity. While this model acknowledges there are multiple phases in the DAF giving process, it does not identify the multiple decision points within the phases or the iterative nature of some phases of DAF giving.…”

“…Prior to coding, all coders familiarized themselves with the data by reading completed transcripts, after which they generated a list of preliminary inductive (i.e., generated direction from participant statements) codes and definitions. Preliminary deductive codes were generated from scholars who have identified conspicuous elements of DAF activity and reasons for using them (Andreoni, 2017;Heist & Vance-McMullen, 2019;Rooney, 2017). Using this initial codebook as a foundation, coders independently coded the same three transcripts, both applying previously identified codes and developing new ones.…”

“…On the Form 990, DAF sponsors report aggregated totals for contributions, grants, number of accounts, and assets. While these data facilitate analyses of organizational performance metrics over time (see Heist & Vance-McMullen, 2019), they do not help answer questions about how or why individuals use DAFs. Many DAF sponsors also provide annual reports with valuable insights about their clients' charitable activities (see Fidelity Charitable, 2016, for example).…”

Community Diversity and Donor Control: An Empirical Analysis of Contributions to Donor-Advised Funds at Community Foundations

“…The explosive growth of DAFs has generated increasing concerns and calls for more regulation (Andreoni, 2018;Colinvaux, 2017;Madoff, 2016). Criticisms exist that DAFs warehouse the giving of elite donors due to the lack of mandated payout restrictions (Collins et al, 2018;Heist & Vance-McMullen, 2019). Particularly, there are concerns that DAFs compromise the place-based identity of community foundations, pulling them into a more donorfocused, national model (Colinvaux, 2018).…”