Philanthropy undergoes evolutions just like anything else. The causes people choose to support change over time, the demographics of who contributes change over time, and the ways people choose to give back change as well. One massive change in the world of philanthropy is the rise of donor-advised funds (DAF), which are financial accounts managed by a public charity or nonprofit where donors can deposit money, stocks, equity, or other assets. Although the donors revoke their ownership rights to whatever they deposit, they retain advisory privileges on how those assets should be distributed.
The growth of DAFs over the course of the past decade has been astronomical. According to The Economist, in 2010, America was home to 180,000 DAFs, but by 2015, their numbers had risen to more than 270,000; the amount of assets they controlled also doubled during that time, from $34 billion in 2010 to nearly $80 billion in 2015. In addition, a DAF–the Fidelity Charitable Gift Fund–took the coveted top spot in the Chronicle of Philanthropy’s prestigious Philanthropy 400 rankings last year, the first time in the history of the list that a DAF had claimed first place.
What makes DAFs so attractive to donors over more traditional charities and nonprofits? Taxes are certainly one reason. DAFs provide larger tax breaks to donors than contributions to other philanthropic or charitable organizations. In fact, a survey conducted by the Fidelity Charitable Gift Fund itself indicated that 90% of DAF donors created or utilized the accounts “to realize an immediate tax deduction for charitable giving.”
Other reasons behind the popularity of DAFs include administrative convenience–donors can set up grants online after contributing assets–as well as the wide range of assets that can be donated into DAF accounts, from cash and stocks to works of art or pieces of real estate.
Critics of DAFs, however, argue that these institutions do not lead to increased rates of giving and actually encourage assets to sit in accounts, where they will continue to gain value, rather than being paid out toward charitable causes. Additionally, since DAFs provide significant tax incentives with little oversight, many detractors assert that they exist solely to benefit the rich.
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