Donor-Advised Funds (DAFs) and how the sector resists change

By Abigail Oduol, a Black planned gift fundraiser in California

Donor-advised funds (DAFs) continue to grow at a ridiculous rate, and criticism of them continues to be limited, and I thought it time to follow up on how the sector resists needed change.

In 2024, I wrote an article about donor-advised funds and how we can change the sector. 

Donor-advised funds (DAFs) continue to grow at a ridiculous rate, and criticism of them continues to be limited, and I thought it time to follow up on how the sector resists needed change. 

(Plus, it’s tax time, so what better time to think about all the massive deductions itemizers are taking by bulk dropping money into their DAF when they are undecided on which charity to support with it– —please decide, now would be a great time.)

In case you missed the first article or don’t feel like reading it, I’m talking about Donor-Advised Funds, defined by the National Philanthropic Trust as “a giving account established at a public charity. The 501(c)(3) public charity serves as a ‘sponsoring organization,’ which manages and administers individual DAF accounts.”

The economics, ethics, and law folks are talking about DAFs and I’m here with my popcorn drizzled in olive oil, salt, and berbere because I’m feeling like I want all the smoke. 

Tuck in, we’re about to dive in deep with some news, views, and action items.

What’s happened in the world of DAFs in the past few years?

“Reforming Donor-Advised Funds” published in The Regulatory Review has a lot of very detailed information about what’s been happening with DAFs. I’m going to quote it a few times when explaining what has and hasn’t happened.

David Walker from the Boston University School of Law saw that “new DAF accounts “skyrocketed” after the 2017 Tax Cuts and Jobs Act (TCJA). He attributes much of this growth to taxpayers seeking to maximize their total tax deduction by “bunching” years of philanthropy into a single year.” 

DAFs don’t make up a massive portion of overall giving, but there has been a consistent and persistent shift from private foundations into DAFs, and these long-term trends together with the TCJA and its pending renewal and doubling down on tax cuts are a part of the wider picture of why there are persistent reports that giving is overall down across the board.

The same year as the TCJA was enacted, DAF holder, Philip Pinkert, sued Schwab Charitable Fund (the suit was dismissed in 2021). Philip was upset about not being able to make choices about the money. But the whole point of a DAF is that donors have lost control of where the money goes after transferring it to the sponsoring organization (in this case, Schwab Charitable), so they had no standing (no legal right to participate in the court case). 

The tax court ruled that the money doesn’t belong to them anymore and said, effectively, “If you don’t like how they do it, then be more careful in the future.” 

In 2019, a proposal from Bay Area assembly member Buffy Wicks to the California legislature would have required a payout rate disclosure to find out how often wealth warehousing is actually happening. Wealth warehousing is when DAF accounts have money for charity but don’t award it. It was supposed to be the first hard data on this. But that legislation died in 2020. It was heavily opposed by the Silicon Valley Community Foundation for whom equity and social justice is a “main program focus” (and who held, at the time, $8.9 billion—with a B—in assets). 

Then in 2023, some US Senators tried to create the Accelerating Charitable Efforts or ACE Act. It was a bipartisan attempt to speed up donor-advised funds payments. According to the reporting by the Chronicle of Philanthropy, the Association of Fundraising Professionals (AFP) and others lobbied hard against it stating “Organizations that offer donor-advised funds, along with a handful of other philanthropy groups, spent $11 million from 2018 to 2023 to block legislation to force donor-advised funds to distribute more to charity. That’s according to an examination of congressional lobbying records conducted by the Institute for Policy Studies, which favors stricter rules governing the popular charitable accounts.” The charities said that it would cause donors to give less. 

In 2023, there were some long-awaited proposed IRS regulations for DAFs. Funnily enough, these new regulations didn’t touch the payout aspect. At. All.

As of November 2024, an article by Rasheeda Childress of the Chronicle of Philanthropy quoted Chuck Collins, program director at the think tank Institute for Policy Studies, saying, “We’re talking about a quarter trillion dollars that is not flowing immediately in a timely way to active nonprofits.” “This tells us that funds continue to be warehoused.” 

Big DAF says, “We’ll release the money… eventually!”

There’s still a problem. But it’s a solvable problem.

So, what does this all mean? It means that there’s still a problem. And it’s a solvable problem. 

Some solutions I gleaned from The Regulatory Review article and other sources, including thought leaders like Kerry Gibbons, Jon Pratt, and David Walker, included the following wishlist for federal- and state-level solutions.

• Limit tax deductions for charitable contributions to appreciated property.
• Amend current tax subsidies for charitable giving.
• Impose obligations on decision-makers to consider intergenerational justice when deciding how much to spend or retain, rather than strictly adhering to private foundation payout rates or legal time limits.
• Develop oversight and distribution protocols for DAFs.
• At the federal level, explicitly ban private foundations from using DAFs to avoid payout requirements.
• At the state level, give state attorneys general more oversight power over private foundation grantmaking. Connect with state attorneys and encourage them to be accountable to you, the voter, on holding DAF-holding charities accountable, and thinking about ways to implement some of the suggestions.
• Contact your House representatives and let them know this is important to you.

Ian Murray brought in the principle of intergenerational justice—the idea that there are moral responsibilities shared across different generations, and we need to consider our ethical responsibilities to past and future generations rather than 5% payout rates and legal minimums. 

What are the oversight and distribution protocols and how do we make DAFs more responsive to current and future needs? Murray recommends procedural reforms, such as developing oversight and distribution protocols, as well as enhancing the responsiveness and flexibility of DAFs to meet current and future needs. 

So, now that we know what the experts suggest, what can we do as fundraising professionals?

Talk to the people who will listen to you and organize. It is really similar to power mapping that you find with unionization efforts. Who do you have a connection to? Who could you have a connection to because of shared affinity? 

This can be included in the intentionality of networking and diversification work and involves conversations with colleagues, donors, and those outside of your circle. Here are some starting ideas:

Talking with Colleagues

• Present/host discussions at grants, stewardship, and other professional associations and get your colleagues talking about this critically. This will allow you to find other organizations, discuss strategies, and encourage more movement in this area.
• Think about, talk about, and then engage in ‘blended giving’ for annual and major giving teams, especially if you don’t have a planned giving team. Either way, a collaboration between folks such as grant writers and individual gifts teams might help in creating a unified strategy on how to disrupt DAF proliferation and solve immediate challenges surrounding them.
• I criticized them for the bad, now for the good: Vox reported that in 2019, the Silicon Valley Community Foundation required that if a donor does not make a recommendation for “at least a $200 gift over two years, foundation leaders reclaim 5 percent of the account balance if no contribution is made in the next three months. And if the donors continue to hoard money for four years, then the entire DAF account’s balance is reclaimed by the SVCF for its own grant-making strategy.” In 2019 SVCF was in the process of shortening the rule to three years and I hope they’ve made further progress. This goes to show that if you are at a DAF holding institution, you can make your own rules to help the money flow outward. 

Talking to donors

• Have conversations with people that include talking about the responsibilities of having a DAF, in addition to the privileges. Here are some suggestions for this conversation:
• Make sure that your vision, your values, and your money are aligned.
• If you are receiving a charitable tax deduction, it means that you have donated money to be for the public good. Because the money no longer belongs to you, you got the deduction. And because you got the deduction, the money needs to be put into action today.
• Have conversations with people who want to grow ‘their money’ to build a ‘legacy’ far down in the future, explaining that DAFs are not the correct vehicle for this (they should look into estate planning and invest in other vehicles that have a higher yield; the DAF is not an appropriate vehicle to get to that destination).

Networking with Finance and Tax professionals

• Does your job involve making referrals? Get to know the people you’re referring. Invite them to local Charitable Gift Planner meetings so they can get to know allied professionals and gift planners who can speak similar financial language about what is more and less helpful if someone has donative intent. And if you’re not a part of your local charitable gift planning meetings, look them up, get there and have these conversations there.
• Have conversations with finance and tax professionals about their work and how it relates to charitable gift planning. If it’s tax season and someone helps you with your taxes, talk with them briefly about this and ask their opinion. Start a relationship!
• See if your institution can offer continuing education for CPAs—try to form relationships with people at the institutional level; planned giving teams can be a great connector and help you include financial and wealth managers.
• Present/start discussions with your local chapter of CPA groups like the Association of International Certified Professional Accountants.
• Promote the idea that we’re all part of the philanthropic sector now (including CPAs and financial planners who might not necessarily see themselves this way).
• Set up recurring meetings and stewardship with people hosting DAFs, philanthropic officers, etc. These folks are connectors and though they are engaged in the sector, they have a very different vantage point of how and why it works. Connecting with them and educating them is your gift of service that keeps on giving.

We live in a reality where the problems seem impossible to solve on an individual level. But for the growing pains that we’re experiencing with the proliferation of DAFS, that’s only partly true. There is much we can do at an individual, team, and group level to make it known that the status quo isn’t working for many smaller organizations. We can, together, push philanthropy in the right direction by each finding the area we want to pursue and then pushing forward. Encourage others that are frustrated about DAFs to consult this list of actions and find a way of pushing forward that they can do. With that, happy tax season whether you do your taxes. Or don’t.