Gone tomorrow? I think not.
Much has been written and said about donor-advised funds (DAFs) in the last two decades. Most voices have marveled at their easy usability and steady growth and only a very few have questioned their charitable nature and purpose. That’s not to say there are not improvements that should be made to DAFs. There are.
Why are DAFs here to stay? First, they’ve been around for almost ninety years with community foundations, and their sponsoring local banks, having established them in the 1930s.
Second, check out the Pension Protection Act of 2006. In it Congress validated the existence of DAFs by writing them into the tax code (after over 70 years of existence without such authentication).
Third, there have been no systemic abuses found with DAFs. DAF sponsors do a good job of screening for valid charitable organizations (through the eyes of the IRS) and illegal tuition payments and other private benefit abuses.
Fourth, as was first touted twenty years ago, DAFs have “democratized” giving in America. For $5,000, with some DAF sponsors, a family can have a foundation-like giving experience not entirely unlike Bill and Melinda Gates. That’s pretty cool.
Fifth, with over 1,000 DAF providers across the country holding more than $110 billion in assets, DAFs are big and growing even more so every year. Importantly, though, with an average annual payout rate (“grants” in DAF parlance) of over 20% they more than triple the payout rate of private foundations.
DAFs have developed significantly and positively since the 1930s. With time it is no surprise that there have been a few issues raised. That’s called progress and evolution. A future post will talk about three of those issues.