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The decade in donor-advised funds

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As we say goodbye to the 2010s, I have been reflecting on the past decade in donor-advised funds (DAFs). There are some important truths that fuel charitable giving, including DAFs, and that have remained the same for a long time — Americans are generous and donors want to stay close to their philanthropy.

But what’s changed? Almost everything else. The platforms and tools that DAF donors use to give have changed significantly in the past decade. The charities where donors start their DAFs, and the types of assets that they give to fund their philanthropy, are evolving. In 2010, there were over 184,000 DAFs in the U.S. Today, there are more than 728,000, an almost 300 percent increase.

In addition to the sheer volume of DAFs, the grants from them have tripled in the past decade from $7.24 billion in 2010 to $23.42 billion in the most recent report. A review of some of the events and trends that spurred the growth of DAFs is below.

  • Technology advancements that help scale giving: In 2010, Steve Jobs unveiled the iPad, Instagram launched, and the Red Cross used one of the first text-to-give campaigns to support disaster relief efforts in Haiti. Technology has changed our society so much — for better or worse — in the decade since, including the philanthropic sector. Generous Americans can download apps to give instantly, find like-minded citizens on crowdfunding platforms to complete philanthropic projects, and access more information than ever before to vet the charities they want to support. Certain philanthropic initiatives, like #GivingTuesday or 2014’s ALS Ice Bucket Challenge, became viral by marrying social media and web or app-based giving tools with people’s instinct to give back.

DAF sponsors, DAF donors and the grantees they support have all benefited from this evolution in technology. Online access, automation and the development of DAF apps allow donors to support their favorite charities quickly and easily. Simultaneously, DAF charities are leveraging technology to scale grantmaking activities. For example, there is an emerging trend of workplace DAFs. They often have low or no minimums and are propelled by technology that keeps the cost of operating the programs low. DAF sponsors have grown in the last several years and keep pace with increased donor grant recommendations, thanks to technology. At NPT, between fiscal year 2018 and 2019, we made 28 percent more grants by volume and 39 percent more grant dollars. Technology has helped us scale our operations (and our impact), responding to more donors’ grant recommendations than ever before.

Of course, charities around the country and across the globe are the ultimate beneficiary of these technology advancements. Those that wisely leverage tech trends, whether telling their impact story on social media or partnering with DAF sponsors, will continue to attract the most donor dollars.

  • Tax policy changes, both proposed and realized: Two of the largest spikes in DAF growth took place during the years that tax policy discussions in Washington, D.C., would change aspects of the charitable tax deduction. The first spike occurred during the “fiscal cliff” in late 2012, when scheduled tax cuts and federal budget disputes occurred simultaneously, threatening the existence of the charitable tax deduction. Philanthropically inclined Americans found DAFs to be a solution in an uncertain tax climate. Ultimately, the charitable tax deduction was preserved, but the trajectory of DAFs changed forever.

Similarly, at the end of 2017, Congress debated and ultimately passed the Tax Cuts and Jobs Act, which changed the way many Americans make tax deductions. This legislation helped drive another growth spike in DAFs. Not surprisingly, after more DAFs were created, we saw a corresponding increase in DAF grantmaking activity. Grants from DAFs have increased 223 percent since 2010, demonstrating that DAF donors are putting their new giving vehicles to use almost immediately.

According to Bank of America, only 17 percent of high-net-worth Americans report that their giving is “always motivated” by tax benefits. If the two tax events above are used as case studies, I suspect all Americans, and particularly the high-net-worth ones, are undervaluing the role that the 100-year old charitable tax deduction plays in their philanthropy.

  • The Great Wealth Transfer: Experts estimate that baby boomers will transfer $68 trillion to their heirs over the next two decades. But before assets even begin to change hands, sometimes they change shape. For example, there are 18.7 million Americans who own their own business. As boomer business owners retire, they often sell — and sometimes donate — their business interests. Collections, like art or jewelry, are another type of asset that require special considerations. According to a recent UBS study, 81 percent of collectors plan to leave their collections to heirs, but only 35 percent of heirs want to keep the collection. There has been a rise in donating complex assets, like closely held stock and collections, to charity as boomers look to manage their estates when they retire.

DAFs have become a popular tool to help turn these assets into charitable capital, for several reasons. First, funding a philanthropic vehicle with complex assets allows the donor to receive an immediate tax deduction, and grant the liquidated proceeds over time to as many charities as they wish. Second, DAFs and other vehicles allow donors to adopt the “giving while living” mindset, execute a legacy plan, or both.

The wealth transfer has only just begun. It is also coinciding with the longest economic expansion on record and the longest bull market for stocks. The long-term impact of these events on charitable giving remains to be seen. For donors whose complex assets represent a large part of their wealth, we’re already seeing the transfer and I expect it will only increase in the years ahead.

  • Philanthropy as part of financial planning: For decades, philanthropy was not a primary topic of conversation in the financial world. Discussions about giving were reserved for high-net-worth clients who were known to be publicly philanthropic. Even then, mostly conversations focused on estate planning. In the last decade, professional advisors have become a huge source of referrals for charities that sponsor DAF programs, including local community foundations, colleges, universities and charities that are affiliated with financial institutions. According to U.S. Trust’s 2018 Philanthropic Conversation Study, nearly all advisors (91 percent) think discussing philanthropy with their clients is important, with 53 percent finding it “very important,” an increase from 46 percent just five years prior.

Over the past decade, we’ve seen some of the largest financial institutions in the world embrace charitable giving in new ways. They now are:

  • Offering impact investments, which allow investors to align their values with their investment strategy;
  • Providing a broader menu of charitable giving vehicles for all clients, from the mass affluent to the ultra-high-net-worth;
  • Educating bankers and advisors on techniques and tools, like DAFs, that can maximize the clients’ philanthropy; and
  • Adding philanthropic experts to their staff.

Financial institutions recognize that Americans are charitable. They also recognize we are increasingly blending philanthropic values into more areas of our lives. Areas like investments and retail purchases have traditionally been separate from (and sometimes at odds with) the charitable world.

As we move into the new decade, I think that bankers and advisors are becoming an even more valuable resource for clients and charities alike as they advise generous Americans about philanthropic solutions.

When I think about the decade ahead for DAFs, and philanthropy more broadly, I am both excited and cautiously optimistic. Innovation has not always been synonymous with the charitable sector. Now we are seeing how technology, social media and everyday activities amplify how Americans give — even what and how they give. (Did you ever imagine you could order household items — that arrive the same day! — on your phone and that it could benefit charity?)

I’m excited about the new ways in which individuals engage in giving, and how new tools are challenging how we “measure” philanthropy. And I am also cautiously optimistic about the future. There’s been a 15-year decline in the number of American households that are giving. It is my sincere hope that new technology, resources and tools can help reverse this worrisome trend.

We still have mountains to climb in addressing the world’s most pressing problems, but I believe today’s philanthropists and the next gen of givers are savvier than ever.

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Donor-advised funds Philanthropy Financial planning Charitable deductions Wealth management
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