The rise of DAFs: Tax breaks now, money for charity later
Billions of dollars are sitting in tax-free Donor-Advised Funds (DAFs) rather than going directly to charities, according to data from the National Philanthropic Trust.
What they are: A DAF "allows donors to make a charitable contribution, receive an immediate tax deduction and then recommend grants from the fund over time," the NPT explains.
- "Donors can contribute to the fund as frequently as they like, and then recommend grants to their favorite charities whenever [it] makes sense for them."
Driving the news: The amount of money in DAFs keeps growing: 13% of all individual, charitable contributions now go into these funds, up from 4% in 2010.
- It's too early to say, but DAFs could get a boost from President Trump's new tax code, allowing philanthropists to take an up-front tax break long before the money makes it to any specific cause.
Between the lines: Critics of DAFs see them as easy tax breaks for the wealthy with no enforcement mechanisms to ensure that money actually goes to charity.
- In the short term, these funds may mostly benefit fund managers.
- As of 2018, there was $121.42 billion sitting in DAFs.
On the other hand, the payout rate from DAFs to charities is more than 20% a year, according to NPT.
- Last year, "grants from donor-advised funds to charitable organizations reached a new high at $23.42 billion," the group said in its report. "This is an 18.9 percent increase from a revised 2017 total of $19.70 billion."
What to watch: In an economic downturn, the funds waiting and growing in DAFs could provide a steady stream of money to charities that would otherwise suffer in a recession.