A new way of giving is changing philanthropy

By THE DATA TEAM

OVER the past decade America’s philanthropic sector has undergone a quiet revolution. A new type of giving vehicle, known as donor-advised funds (DAFs), has become wildly popular and is changing the way people make donations. In 2010, roughly 180,000 DAFs held about $34bn worth of assets. By 2015, over 270,000 DAFs housed almost $80bn. Of America’s top 20 charities by public donations, six provide DAFs on a large scale, according to the Chronicle of Philanthropy, a news organisation. Last year Fidelity Charitable, a DAF supplier linked to the mutual-fund group, was crowned the biggest charity in America, usurping United Way, a traditional non-profit.

DAFs are a bit like bank accounts held at a non-profit entity. Deposits into a DAF are irrevocable, and assets held in them can only flow to another charity, as defined by the Internal Revenue Service. In the meantime, the donation is invested by the DAF provider and grows tax-free.

The growth of these vehicles is in part explained by the benefits they offer over starting a foundation or giving directly to a charity. Tax breaks are more generous than those associated with giving to a foundation, set-up costs are lower and online access platforms modelled on internet banking make donating much more convenient. But unlike giving directly to a charity, the tax benefits can be booked before the ultimate beneficiary has been chosen. In addition, non-cash assets, such as land or fine art, are easier to give away, because the DAF provider will sell them and place the proceeds into an account.

Lingering concerns remain over certain features of DAFs. Critics argue that the tax breaks mainly benefit the rich, and that DAFs′ opaque nature leaves them open to abuse. Moreover, there is little evidence that DAFs’ sudden popularity has actually caused any more money to reach the needy. What is certain, however, is that if DAFs do not face additional regulation, they will make up an increasingly large part of America’s philanthropic landscape.

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