Charitable giving in the U.S. is undergoing a transformation with two major trends reshaping the landscape. The rapid rise of donor-advised funds (DAFs) and the increasingly indistinct boundary between charity and political involvement are at the forefront of this evolution.
Donor-advised funds, or DAFs, are essentially charitable investment accounts. Once donors contribute money or financial assets to these accounts, they no longer own them. However, they retain the ability to influence investment decisions and direct which charities receive funds. In 2024, Americans contributed nearly US$90 billion to DAFs, a significant increase from $20 billion a decade ago.
Research indicates that DAF donors are more likely to support politically engaged charities than those who donate directly. This finding emerged from a study by two scholars examining the interplay between donor-advised funds and politically active charities. Their research is set to be published in the Nonprofit Policy Forum.
DAFs: A Middle Ground
Donor-advised funds are seen as a hybrid between family foundations and direct charitable organizations. They offer donors long-term control similar to foundations, but with the added benefits of tax advantages and simplicity, as they are managed within public charities often linked with financial institutions like Fidelity and Vanguard.
DAFs allow donors to take immediate charitable tax deductions, deferring decisions on the timing and recipients of the funds. This flexibility can enhance the tax benefits associated with charitable giving, without the complexities and costs of managing a private foundation.
The combination of these benefits and effective marketing strategies has fueled a boom in DAFs, which held $326 billion in 2024.
Political Engagement in Charities
Charities engaged in political activities, such as lobbying or campaigning, span the political spectrum, including organizations like the National Rifle Association and the Environmental Defense Fund. Data collected from nearly 250,000 U.S. charities filing 990 forms with the IRS between 2020 and 2022 reveals that DAFs contribute nearly 6% of their disbursements to politically engaged charities, compared to 3.6% from other sources.
DAF funding for fringe groups, although limited, is notably higher—3.5 times more than from other donors.
Anonymity in Giving
DAFs also offer donors increased privacy. Unlike direct donations over $5,000, which require disclosure to the IRS and the public, contributions through DAFs can remain anonymous, even to the recipient charity. This anonymity may encourage donors to support politically active organizations more freely.
While U.S. charities can engage in various degrees of political activities, the transparency gap created by DAFs could lead to funding for fringe groups, challenging the original intent of disclosure rules designed to prevent misuse of charitable contributions.
Impact on Charitable Giving
As DAFs continue to expand, understanding their long-term impact is crucial. While recent discussions have focused on accelerating the distribution of DAF funds, the allocation of these funds also warrants attention. Studies show that certain sectors, like social service nonprofits, receive a smaller share of DAF contributions compared to overall giving.
Further research is underway to determine whether the size of a charity’s DAF program influences its behavior, with initial findings suggesting community foundations may shift focus away from local communities in pursuit of DAF donors.
