COVID-19 spurs generosity among holders of donor-advised funds

It's been a remarkable year of philanthropic payouts for donor-advised funds (DAFs), which let people take an immediate tax deduction by putting money into an account earmarked for future charitable donations.

Why it matters: DAFs often take heat because people can park money there indefinitely, reaping the initial tax benefit without donating to good causes. More than $1 trillion sits in private foundations and $120 billion in donor-advised funds rather than being distributed to charities.

• In 2020, both contributions to DAFs and distributions from them rose.

It's been a remarkable year of philanthropic payouts for donor-advised funds (DAFs), which let people take an immediate tax deduction by putting money into an account earmarked for future charitable donations.

Why it matters: DAFs often take heat because people can park money there indefinitely, reaping the initial tax benefit without donating to good causes. More than $1 trillion sits in private foundations and $120 billion in donor-advised funds rather than being distributed to charities.

• In 2020, both contributions to DAFs and distributions from them rose.

What's happening: The dramatic events of 2020 — both the pandemic and the movement for racial equality — inspired people who had set up DAFs to add money to them and to pay out grants to related charities.

• Contributions to National Philanthropic Trust DAFs in 2020 are up about 4% from 2019, while both the dollar amounts and number of grants funded is up about 50%, according to Eileen Heisman, president and CEO of the organization, a major sponsor of DAFs.
• At Vanguard Charitable, another big sponsor, the trends were similar, with $1.3 billion in grants made by DAF holders in 2020 — about 25% higher than last year, said Rebecca Moffett, chief strategic planning officer.
• "We have seen an absolutely overwhelming response from our donors" to the societal needs that have emerged this year, Moffett tells Axios.
• "There has been research that has shown that DAFs are especially resilient during economic down times."

What's new: This year both Fidelity Charitable and Schwab Charitable dropped the minimum amounts they had required people to invest in order to set up a DAF.

• And sponsors introduced new tools to help people select charities they'd like to support.
• The one at Vanguard Charitable is called NAVi, or the Nonprofit Aid Visualizer, an interactive tool that lets anyone (not just fund holders) search for charities where they might like to direct their disaster relief dollars.

What they're saying: When the pandemic started, DAF holders started making grants "directly related to COVID and charities that they loved that they were afraid were going to go out of business," Heisman said. "And then when Black Lives Matter came out, there was a lot of focus on social justice organizations."

• Lately, she said, she's seeing donations to groups that are struggling for survival —  like arts and environmental organizations — as well as to health care-related causes.
• "People are branching out to help charities that otherwise literally might have to close their doors," Heisman said.

The bottom line: Most people don't give money to DAFs strictly for tax reasons. "I have never seen that to be true," said Heisman, who has worked in the field since 1987. " There are very few dormant accounts."

• "People use these because they really want to be actively engaged in their grant-making," she said. "People give the money out, and they restock it when they get a bonus or an inheritance."