Donor-Advised Funds Deliver Flexibility for a New Era of Charitable Giving
By William Ginsberg and Rebecca Moffett
Americans have long distinguished themselves through unusually high rates of charitable giving, and recent crises have made clear that their generosity will be needed even more in the years ahead to meet our nation’s acute needs. Fortunately, donor-advised funds (DAF) are playing an increasingly critical role in helping Americans respond to the present moment. Congress should continue to protect this mode of giving so that donors can help our communities meet everyday needs now and prepare for the crises to come.
Generous Americans have been stepping up since the early days of the COVID-19 pandemic in places like New Haven, Conn. Working with the Community Foundation for Greater New Haven (CFGNH), a local philanthropic institution founded in 1928, a group of like-minded donors used their DAFs to ensure that food, water, healthcare, and shelter were available to everyone in their community during the crisis.
Drawing on its community connections, the Foundation helped these donors consult with front-line service providers and affected community members. The donors mobilized quickly and through their DAFs funded the response work of local nonprofits, including FISH of Greater New Haven. This additional funding helped FISH substantially expand its food pantries and healthy food delivery program to veterans and those who are homebound.
Altogether, donors with DAFs at the Foundation granted more than $1.8 million to support organizations providing essential resources to greater New Haven residents affected by the pandemic.
DAFs were also the centerpiece of a pandemic response effort led by the donors of Vanguard Charitable, a national sponsor of DAFs with over 25,000 donors across the U.S.
Early on, Vanguard Charitable reached out to its donors to ask how best it could support their response to the COVID-19 crisis. The answer was clear: Donors wanted to support well-vetted organizations working on the front lines of their local communities. Using its position as one of the nation’s top grantmakers and DAF sponsors, Vanguard Charitable convened partners from across the nonprofit sector and launched the Nonprofit Aid Visualizer™ (NAVi).
NAVi is an interactive platform that harnesses a variety of datasets to make it easy for donors nationwide to find local charities working on the frontlines of the COVID-19 pandemic. Vanguard Charitable donors responded in force with their DAFs, marking record granting totals in 2020, 2021, and the first half of 2022. Not only is NAVi fully available to the public, but Vanguard Charitable has since introduced an updated version focused on the perennial challenges of hunger and homelessness.
What are donor-advised funds?
Donor-advised funds are charitable giving accounts sponsored by public charities (such as CFGNH and Vanguard Charitable) that allow donors of all income levels to become strategic philanthropists. DAFs are flexible, impactful, and easy to use; donors make a sustained commitment to charities of their choosing through irrevocable, upfront contributions that are tax-deductible. DAFs pull more dollars into the philanthropic sector by investing charitable assets for growth, making non-cash assets more readily available for donation, and encouraging donors to be more strategic and thoughtful with their giving.
DAFs have proven to be especially valuable during crises. Because the money in DAFs is set aside exclusively for charitable purposes, donations from DAFs tend to be more resilient in these moments of uncertainty. (1) For example, DAF grant dollars in the early months of COVID were 30% higher than in 2019, with a 38% increase in the number of grants. These increases touched nearly every part of the nonprofit community. (2)
These numbers are bolstered by the growing popularity of the DAF sector, which now includes over one million individual DAF accounts. The average account holds a balance of about $159,000. National Philanthropic Trust’s 2021 DAF Report found total DAF grants to charity in 2020 approached $35 billion—a 27% increase over the year before. The aggregate payout rate for DAFs reached 24% in 2020 — the highest rate since 2006. Payout rates have exceeded 20% every year on record.
Providing for both near- and long-term need
We have entered a new era of charitable giving. While the Community Foundation for Greater New Haven and Vanguard Charitable employ different philanthropic approaches, the two organizations have both leveraged DAFs to maximize donors’ generosity in this time of great need.
As the U.S. continues to respond to COVID-19 and prepares for future crises, it’s essential that the philanthropic community evolves to ensure that immediate needs can be met while also boosting the sustained, ongoing giving that is so important to our country’s social fabric. Donor-advised funds represent a powerful tool in our collective giving toolbox to achieve both near- and long-term demand for donations. Donors, nonprofits, regulators, and members of Congress should recognize the value DAFs provide in meeting the needs of a rapidly shifting philanthropic landscape.
William Ginsberg is President and CEO of the Community Foundation for Greater New Haven.
Rebecca Moffett is President of Vanguard Charitable.