DAFs Benefited From 2021 Stock Market Gains With 46.6% Jump in Contributions, Report Says

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Investors poured their stock-market gains last year into donor-advised funds, or DAFs, as contributions into these tax-deductible charitable accounts soared 46.6% to a record high of US$72.67 billion, according to an annual report on the industry released on Tuesday.

The value of philanthropic grants—money disbursed to nonprofit recipients—from individual DAFs, meanwhile, jumped more than 28% to US$45.74 billion last year, the 2022 Donor-Advised Fund Report found. 

While grant levels didn’t beat contributions in 2021, past experience indicates dollars put into DAFs last year will likely show up in grants made this year and next, says Eileen Heisman, CEO of National Philanthropic Trust, or NPT, a Pennsylvania-based nonprofit that compiled the report for its 16th year.

“This report shows that in robust times, people really want to put money away so they can give it away in the future,” Heisman says, noting that history has shown, “when we see a bump in contributions, we usually see pretty aggressive grantmaking the next year.” 

That pattern tells nonprofits that “DAF donors will be supporting you regardless of the economy,” she says. 

DAFs are irrevocable, tax-deductible investment accounts administered by charitable organizations that donors can tap for making grants to qualified nonprofits. 

When markets are rocky, or the economy’s future is uncertain, DAF holders tend to use these accounts as a “rainy-day fund,” Heisman says. “Even though their personal wealth might be diminished, they look at their DAF as a giving opportunity.”

Unlike private foundations, which are required to distribute 5% of their holdings annually to charity, DAFs don’t have to make annual distributions. In 2021, however, 27.3% of total assets in these accounts were paid out to charities, a 12.7% increase from a year earlier. The payout rate has averaged 22.2% in the past 10 years. 

The boost in giving last year may reflect soul searching during the time of the pandemic, Heisman says. “People were taking stock of what was important to them, what was driving them,” she says. “Charitable giving is one outlet for people to realize they have a chance to give back.” 

Total assets in DAFs at year-end—driven by surging stock markets in addition to contributions—reached US$234 billion, a 39.5% jump, while the number of accounts grew by 27.6% to nearly 1.3 million. 

The growth in accounts likely reflects the wealth transfer between the baby boom and millennial generations, Heisman says. It also reflects an increasing number of workplace giving accounts, in addition to contribution limits as low as zero dollars.

One reason big leaps in stock appreciation drove contributions was that individuals can donate appreciated stocks and other complex assets, such as real estate, into these charitable accounts. At NPT, more than half of assets donated in the five years through 2021, were publicly traded securities while 8% were complex assets, Heisman says. 

Given the drop in stock markets so far this year, individuals are more likely to fund their DAFs in 2022 with cash instead of stock, she says. 

The annual report gleaned data from tax filings from just under 1,000 of these accounts administered by national charities, community foundations, and single-issue nonprofits. 

According to the report, grants soared 60% in the past two years covering the initial years of the pandemic. To Heisman, the rate of giving is notable particularly because many were predicting significant numbers of nonprofits would have to shutter for lack of funds because of Covid-19.

“Donors may have been hearing that and saying, ‘I don’t want my favorite causes or organizations to go out of business,’” she says, so they were giving to organizations they’ve long supported in addition to grants made for various forms of Covid relief.