The Pentera Blog
Keeper or Crush? The Pros and Cons of Donor-Advised Funds
Like a new kid turning heads at school, donor-advised funds (DAFs) are soaring in popularity while raising eyebrows and stoking skepticism.
Essentially warehouses for philanthropic donations, DAFs provided about 8% of the $471 billion Americans gave to charities in 2020—according to the National Philanthropic Trust. Also that year, total DAF assets under management approached $160 billion while the number of individual DAF accounts swelled to more than 1 million for the first time.
Critics of DAFs, the largest of which are administered by financial services companies, argue that high-net-worth individuals reap tax windfalls while charities are often left waiting to put these gifts toward their charitable programs. Critics also argue that DAF managers, who earn fees for their services, have an incentive to keep as much money under management as possible. They also note DAFs enable donors to anonymously support controversial causes.
Proponents, meanwhile, note that DAF accounts are easier and cheaper to set up than private foundations, allow donated assets to grow in value over time, and give philanthropists breathing room to carefully consider how best to allocate their charitable dollars. Donors can manage their accounts from their smartphones, and many DAF providers require just $5,000 to establish an account. Some DAFs also accept donations of noncash assets, such as business stock, real estate, and art. All of this, proponents say, make DAFs a win-win for donors and charities.
Still, DAFs could be facing some big changes. In 2021 bipartisan legislation was introduced in Congress that would, among other things, establish minimum required distributions from DAF accounts within certain time periods. That may or may not happen. Either way, for the foreseeable future, this new kid on campus will almost certainly continue to simultaneously dazzle and displease.
