'We want donors to be making grants': A Fresh Perspective on Donor-Advised Funds

Flickr Creative Commons photo by iamsch.

A new piece by five prominent community foundation leaders in Nonprofit Quarterly offers an overlooked perspective in the ongoing debate over the role of donor-advised funds in philanthropy.

In it, these leaders show how investments in DAFs at community foundations are helping fuel an important surge in grantmaking into communities nationwide -- and how these investments will, in turn, help promote consistent grantmaking for years to come. They write:

"To illustrate the power of this concept, one need look no further than the most recent Columbus Survey, the annual analysis of giving to and grantmaking by US community foundations, which found that contributions from donors to the 100 largest community foundations totaled more than $8.9 billion in 2017, an increase of some $780 million compared with 2016.

"But the real story isn’t the impressive increase in giving to community foundations; it’s the even more impressive surge in money granted out to nonprofits. These same 100 foundations paid out $1.1 billion more in grants in 2017 than they had in 2016, meaning that the increase in money going into their communities substantially exceeded the amount of new money going into the foundations.

"Looking back even farther, the Columbus Survey figures show that while annual gifts to these community foundations increased by 100 percent from 2011 to 2017, annual grantmaking increased at an even faster rate—120 percent."

Donor-advised funds are not just about straight-line transactions. At community foundations, these funds are invested and grow -- and are often paired with other investments and donations to tackle immediate and long-term problems.

While it's clear that the field needs to continue to make sure it monitors these funds to ensure that they are being used properly, the authors say that many of the proposals that are being proposed in the media would diminish the amount of money donors give to nonprofits and the communities they serve.

"The proposed changes that we hear most about have focused almost exclusively on one dubious notion—namely, that DAFs stand between donors and the charities they support. This notion, in turn, has spawned proposals that are designed to curb giving to DAFs in favor of direct gifts to charities," they write.

"Such moves, however, we fear, would ultimately have the opposite effect. In our experience, philanthropy is not a zero-sum game, where giving levels can be assumed to be fixed and transferable, regardless of giving vehicle. Removing well-considered incentives and convenience for donors does not mean they will simply give the same amounts through another vehicle. Some might, but many others will give less—or not give at all."