Warehousing Wealth in Donor-Advised Funds

As the concentration of wealth among the top 0.1 percent has grown, philanthropy has become more “top heavy.” The number of middle-income donations is shrinking and most of the growth in annual charitable giving is coming from the very wealthy.

This is concerning because wealthier donors generally give to intermediaries such as their own private foundations or donor-advised funds (DAFs), not outright to charitable recipient groups. As we’ve discussed in other research, this warehousing of charitable donations has grown significantly over the last decade.

U.S. taxpayers provide a generous tax break for giving to qualified charities, and the wealthier the donor, the greater the tax reduction. The subsidy, as high as 74 cents on the dollar, is why there is a public interest in knowing that funds are flowing out to working charities. 

Donor-advised funds have a fundamental design flaw: donors receive a deduction upon transfer of their gift, but there is no legal requirement that funds leave the DAF and flow to an active charity. Private foundations, on the other hand, are required to pay out at least 5 percent of their assets on an annual basis. 

A number of organizing efforts have pressed to reform the rules governing philanthropy, including advocacy for emergency payout provisions during the pandemic.

The Charity Reform Initiative of the Institute for Policy Studies advocates for increasing private foundation payout, requiring DAFs to have a payout (as they do in Canada), and greater transparency reporting for DAFs. The objective is to increase the flow of funds out of intermediaries and to active charities. 

One thing we have discovered is that private foundations and DAFs give a substantial amount of funds to other DAFs. These transactions are included in estimates of charitable giving and are counted toward DAF payout. But these funds have not effectively left the donor’s domain. 

In a recent analysis prepared by Helen Flannery and Chuck Collins, “More Than One Billion Dollars In DAF Grants Went to Other Commercial DAFs in 2019,” we analyzed the tax returns of commercial DAF sponsors. We discovered that in 2019 alone, at least one billion dollars in commercial DAF grants went to other commercial DAFs. 

This is just the tip of the iceberg. This is an enormous amount of money cycling between giving vehicles rather than being distributed outright to charity. But it is likely only scratching the surface of DAF-to-DAF giving, as it doesn’t capture transfers to or from DAFs held at community foundations and other mission-driven DAF sponsors.

Opponents of DAF reform argue that it isn’t necessary to impose payout requirements on DAFs because DAF donors are already transferring a great deal of money to charity. But if a significant portion of DAF grants are actually grants to other DAFs, it skews any payout rates reported by these institutions, and makes it nearly impossible to evaluate whether DAFs are actually distributing revenue to working charities in a meaningful way. 

As a first step in an effort to quantify DAF-to-DAF giving, therefore, the Institute for Policy Studies examined five years of tax returns for 39 of the nation’s top commercial DAFs to see how many of their contributions went to other commercial DAFs. These include DAFs that are either sponsored by financial corporations, such as Fidelity Investments or Goldman Sachs, or are clearinghouses of DAFs on a national scale, such as DonorsTrust or the Tides Foundation. We did not examine granting to DAFs sponsored by either community foundations or single-issue organizations such as universities or hospitals. What follows are the key findings from our analysis.

Key Findings

Of the 52 top commercial donor-advised fund sponsors in the United States, 39 filed their tax returns electronically in at least one year from 2017 to 2019. Unless otherwise specified, the findings below are based on these 39 electronically-filing DAF sponsors. They do not include any DAF granting done by DAF sponsors that filed on paper.

• More than $1 billion was granted from commercial DAF sponsors to other DAF sponsors in 2019. Over the five years we analyzed from 2015 to 2019, the 39 electronically-filing commercial DAFs granted a total of $2 billion to other commercial DAFs.
• Commercial DAF-to-DAF giving is growing astronomically. Just $209 million was transferred between commercial DAFs in 2015. This means that the one billion dollars transferred between commercial DAFs in 2019 represents growth of 409 percent over the five years from 2015 to 2019, for an average effective growth rate of 50% per year. And this type of commercial DAF-to-DAF giving grew at more than three times that rate, 166 percent, in just the past single year from 2018 to 2019.
• 31 of the commercial DAF sponsors in our analysis gave to another commercial DAF in at least one of the five years from 2015 to 2019. On average, 22 commercial DAFs gave to at least one other commercial DAF in any given year. Most DAFs gave to just three or four different commercial DAFs each year. But the largest–including Fidelity Charitable, Schwab Charitable, the National Philanthropic Trust, the American Endowment Foundation, and Morgan Stanley Global Impact Funding Trust–distributed grants to 16 or more other commercial DAFs each year.
• 44 of the top commercial DAFs received at least one grant from another commercial DAF from 2015 to 2019. On average, 33 commercial DAFs received grants from other commercial DAFs in any given year.
• In 2019, the Fidelity Charitable Gift Fund was the largest grantor to other commercial DAFs, and was the largest recipient of commercial DAF grants as well. Fidelity gave $448 million to a total of 29 other commercial DAF sponsors that year, while at the same time receiving $231 million in grants from 14 other commercial DAF sponsors.