Reshaping Charity Channels: How Assets Flow into and out of Donor-Advised Funds

Abstract

Donor-advised funds, or DAFs, are a rapidly growing segment of the nonprofit sector in the United States. DAFs are segregated financial accounts held in charitable organizations (called DAF sponsors) that serve as intermediaries in the flow of financial resources from donors to operating charities. This chapter assesses the position of DAFs as links in the US charity supply chain and empirically tests how their resource flows differ from traditional means of giving. We first define DAFs and DAF sponsors and describe the reasons for their rapid growth. Using public tax return data from 2020 to 2022, we then examine if and how the types of assets flowing into DAFs differ from those flowing into other public charities. We show that DAFs facilitate noncash giving, particularly noncash gifts with added tax incentives. We then examine how the allocation of grants from donor-advised funds to various charitable recipient sectors differs from other means of giving. We show that not only do DAFs often cycle funds between DAF sponsors, but also that DAFs disproportionately facilitate giving to educational and religious organizations at the expense of human service and health care organizations. The chapter concludes by discussing implications for these findings, including how DAFs may be quietly altering the charitable landscape in the United States.

Keywords: charitable giving, charity, donor-advised funds, financial intermediaries, philanthropy

JEL Classification: K34, L30, L31, L38