Editor’s Note: This article was originally published on April 15, 2025.
The Institute for Policy Studies’ Independent Report on DAFs, which uses publicly accessible data to “demystify donor-advised funds and their impacts on charitable giving, fair taxation, and our democracy itself,” lands at a time when two trends threaten to dramatically upend the philanthrosphere.
The first is growing calls for philanthropy to fill the gaps left by draconian federal cuts. Commentators are asking foundations to up their payout rates, and the same logic should apply to DAF account holders who, according to the DAF sponsor National Philanthropic Trust’s 2024 DAF Report, were sitting on $251.5 billion in total charitable assets that they can channel to working nonprofits.
The second trend, which is still in its hypothetical stage, is how the proliferation of DAFs could accelerate what IP Editor-in-Chief David Callahan recently called a “day of reckoning” for philanthropy. “You don’t have to be a right-wing populist to question whether taxpayers should subsidize the creation of large foundations or massive gifts to elite universities,” Callahan wrote.
Again, the same logic applies to DAFs. For years, reformers across the political spectrum have questioned whether taxpayers should subsidize a charitable vehicle that allows individuals to receive an immediate tax break but does not require them to disburse funding to working charities — ever. If we accede to Callahan’s premise that Americans aren’t all that keen on “footing the bill for Bill Gates’ private jet travel,” then it stands to reason they’d have no problem tearing down a system that allowed Google cofounder Larry Page to hit the 5% foundation payout requirement by sending 99.9% of his foundation’s 2022’s grant dollars to a DAF at the National Philanthropic Trust.
Don’t just take my word for it. Last year, Inequality.org, in cooperation with The Giving Review, commissioned an Ipsos poll to gauge Americans’ opinions about foundations and DAFs. A convincing 79% of them said donors should be required to distribute DAF money within five years.
“The common sense response was, ‘You got a tax break, so move the money in a timely way,’” said Chuck Collins, who directs the Charity Reform Initiative and the Program on Inequality and the Common Good at IPS, where he also co-edits Inequality.org, and co-authored an IP guest post about the Ipsos poll last year. “We don’t want people to look at DAFs as a legacy institution or something donors pass on to their great-grandchildren. If they want to do that, create a private foundation where at least there’s a 5% payout requirement.”
At a time when nonprofits are grappling with diminished funding, and the public “isn’t supportive of many of the rules and practices that surround the sector,” as Callahan noted, here are three takeaways from “The Independent Report on DAFs,” which Collins co-authored with his IPS colleagues Bella DeVaan, Helen Flannery and Dan Petegorsky.
The report’s data set is refreshingly transparent
The report complements a body of research produced by DAF sponsors that, according to IPS, fails to provide full transparency around how their data is collected, overstates the breadth of DAF giving and can create the impression that all of that money is flowing to working nonprofits.
Consider that IPS’s report pulled its DAF sponsor data from publicly available Form 990s and made the data set publicly accessible for download. “If somebody says, ‘We disagree with this analysis,’ you can tell us, and it can be corrected,” Collins said.
According to the report’s authors, their approach underscores one of the “fundamental shortcomings” of the National Philanthropic Trust’s DAF Report, which has been the nonprofit sector’s primary source for nationwide DAF trends. “It’s not a transparent report,” Collins said. “They include a sampling of DAF sponsors to get the data, but they don’t tell you which of those DAF sponsors they use. One year, it could be Vanguard; another year, it could be Schwab.” (A representative for the National Philanthropic Trust declined to comment for this piece.)
IPS’s report states that total DAF assets have grown 67% over the past four years, from $152 billion in 2020 to $254 billion in 2023. While national sponsors like Fidelity Charitable, Schwab Charitable and the National Philanthropic Trust represent 3% of DAF sponsors, they held 70% of all DAF assets, took in 73% of all DAF contributions and gave out 61% of all DAF grant dollars in 2023.
The authors note that where possible, they used median values, which “tend to represent typical sponsor behavior better than average values, since they aren’t skewed by outliers.” The median DAF account size across all sponsors was $135,086 in 2023.
As for the all-important DAF payout rate, the report notes that “DAF experts have estimated that the calculations used in DAF industry reports may overstate payout rates by more than 50%.” Acknowledging that payout rate is “a slippery concept to quantify,” IPS’s report uses the IRS calculation — outgoing DAF grants divided by the sum of year-end DAF assets plus outgoing DAF grants. Using this formula, the authors found that the median payout rate across all sponsors was 9.7% in 2023.
As DAF providers like to note, that figure is higher than the mandatory 5% foundation payout rate. Skeptics of the current regime counter that the figure elides the fact that some donors, despite receiving an immediate tax break, don’t give money to nonprofits at all on an annual basis.
DAF industry reports can understate and overstate key data points
The authors of IPS’s study note that DAF industry reports tend to group large national sponsors with workplace giving sponsors and donation processors like Network for Good. As a result, these reports “may understate average national sponsor DAF account sizes by as much as 80%.”
IPS’s report breaks out national sponsors from workplace giving sponsors and donation processors. The authors found that in 2023, national sponsors and donation processors together would have had an average DAF account size of $63,334, versus $384,793 for national sponsors by themselves. For Collins, this finding chips away at the narrative promulgated by the DAF industry “that lots of ordinary folks are opening up DAFs, because if you combine donation processors with the big national sponsors, you’re going to get a smaller average account size.”
Conversely, industry reports can include DAF-to-DAF grants in their data sets, which can inflate grant, contribution and payout numbers since these figures can be quite large.
The IPS report noted that in 2023, Schwab Charitable’s third-largest grant was to Fidelity Charitable, at $122 million, while the latter’s largest grant was to National Philanthropic Trust, at $195 million. All told, DAF-to-DAF grants totaled $4.4 billion in 2023. “We don’t know why DAF-to-DAF transfers happen,” Collins said. “Maybe a donor changed their financial advisors or wanted to consolidate their DAFs in one place.”
Regardless of why the transfer occurred, if a report says that DAFs distributed a certain amount of money but fails to specify that some of that amount was transferred to another DAF sponsor, it can create the false impression that all of the money flowed to a working charity.
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IPS suggests Congress could implement meaningful reforms
IPS’ report noted that private foundations gave approximately $3.2 billion in grants to national DAFs in 2022. Admittedly, it’s not an astronomical figure relative to all the money sloshing around in the DAF ecosystem, but it’s still a concerning one, since again, we’ll never know if that money flows to a working charity, even though foundations can count those grants toward their 5% annual payout requirement. (Collins directed me to his colleague Helen Flannery’s research documenting, among other things, the 25 foundations that gave the most to DAFs from 2017 to 2021.)
Surveying the field in its totality, the IPS report states that “Congress could take a number of steps to ensure that DAFs are more accountable to the public and move funds in a timely manner to charities on the ground.”
While I wholeheartedly agree with the sentiment, I’d be remiss if I didn’t state the obvious: Reformers pushing for Congress to mandate, for example, a five-year payout for DAFs will need to contend with a well-resourced financial services industry that, according to Collins, is incentivized to maintain the status quo.
“If I’m managing Mike Scutari’s billions, those are my assets under management,” he said, in what was a particularly fanciful analogy. “It’s not in my interests to have you say, ‘I want to empty my DAF this year.’ If I’m your financial advisor, I’d say, “Whoa, Mike, take it easy! Think about that rainy day fund, think about your kids! We have an industry that’s aggressively promoting DAFs that does not have an interest in moving money in a timely way.”
National DAF sponsors’ defense of existing regulations involves the precepts of strategic philanthropy. DAF account owners are busy individuals and a five-year payout would force them to disburse grants without conducting sufficient due diligence, diminishing their charitable impact and overwhelming nonprofits that lack what consultants call the “absorptive capacity” to handle large gifts.
Collins is sympathetic to this line of thinking — to a point.
“Good giving does take time, effort and expertise, so you don’t want people to be unduly rushed,” he said. “But my view would be, if they need more time, maybe they shouldn’t get a tax break for the years they’re going to spend trying to figure out what to do. How many years should I subsidize your discernment process?”
Collins is the lead organizer of the Donor Revolt for Charity Reform, which is lobbying for changes to the U.S. tax code that would unlock more money to charities, like requiring DAFs “to pay out funds within 5 years of receipt.” Recognizing that the movement can’t match the financial services lobby’s resources, Donor Revolt is recruiting DAF account holders and community foundations to call for what Collins considers “milquetoast reforms” like a mandatory five-year DAF payout.
It’s worth noting that the Accelerating Charitable Efforts Act, which proposes a 15-year DAF payout, has stalled in Congress. Among other lines of criticism, its opponents argue that the legislation would burden DAF providers — and especially underresourced community foundations — with onerous reporting requirements. Nonetheless, IPS’s new report on DAFs is a welcome addition to the conversation, especially if taxpayers — or the politicians — become increasingly suspicious of propping up pillars of the charitable status quo.
“We want to advance the policy discussion with a more accurate and full picture,” Collins said. “As long as we’re subsidizing the giving, we have a right to know if this is the best use of our tax dollars. I think that’s a voice that’s not at the table.”
