Donor-advised funds (DAFs) have become one of the fastest-growing planned giving vehicles over the last few decades, offering flexibility for donors and a steady stream of support for charities. The Giving USA 2024* report highlights the evolving nature of DAFs and notes several key trends and developments that could potentially impact how they will function in the future and the strategies that will best help your organization attract grants to support your important work.
Contributions to DAFs declined in 2023
According to the Giving USA 2024 report, in 2023, contributions to major donor-advised fund sponsors declined compared to 2022.
• Vanguard Charitable saw a drop of 21.9%.
• Schwab Charitable experienced a significant decline of 25.0%.
• Fidelity Charitable faced a decrease of 14.3%, marking their second consecutive year of decline.
It’s important to note that these reductions may be in part due to the sharp decline in the stock market at the end of 2022, which influenced the 2023 data. Despite these decreases, contributions remain higher than pre-pandemic levels from 2019 and 2020, and contributions from the Philanthropy 50 (the 50 largest donors in the U.S.) actually increased by 300% from 2022 to 2023.
Grants from DAFs are on the rise
Though a decline in the stock market tends to negatively affect contributions to DAFs, grants from DAFs continued to grow, albeit unevenly. This remains consistent with findings that grants from DAFs increase during difficult economic periods and times of hardship.
• Vanguard Charitable led with a substantial 11.1% increase in grants.
• Schwab Charitable experienced more modest growth of 7.2%.
• Fidelity Charitable saw a decline of 9.5% in grant dollars, but their two-year growth was a net positive of 3.1%.
The total grant amount from Fidelity Charitable, Schwab Charitable, and Vanguard Charitable combined reached $17.49 billion, which is a 3% decrease from the previous year’s total.
Trends in grant distribution
The allocation of DAF grants in 2023 offers valuable insights into the evolving priorities of DAF donors.
• Education received the largest share of grants from Fidelity Charitable at 23% of total grants.
• Religion received the largest share of grants from Schwab Charitable at 28% of total grants.
• Human services received the largest share of grants from Vanguard Charitable at a little over 28% of total grants.
The future of grantmaking is here
In 2023, Vanguard Charitable introduced “Grant Payments,” a collaboration with PayPal that allows for instantaneous grants to nonprofits. This new tool facilitated nearly 35,000 grants totaling $467 million to over 8,000 nonprofits within its first year. The system supports payments up to $10 million with no fees. This streamlined donation process allows charities to receive funds from grantmakers faster than ever and may lead to increased grant frequency.
Proposed regulatory changes
In November 2023, the U.S. Treasury Department proposed new regulations for DAFs. Key changes include:
• Redefining DAFs as “separately identified” funds with advisory privileges, excluding investment advisors from making grants or being compensated by the fund.
• Clarifying that public charities and government entities would not be considered “donors” under the new definition, preventing grants from intermediary organizations.
• Prohibiting grants from DAFs being used for lobbying.
Notably, the proposed regulations did not address concerns about setting a mandatory deadline for when funds must be distributed (to prevent funds from sitting unused) and restricting when donors can claim a tax benefit after making a donation to a DAF.
Maximizing gifts from DAFs
Donor-advised funds are still evolving, influenced by regulatory changes, market conditions, and innovative approaches to grantmaking. Organizations looking to tap into gifts from DAFs should focus on the following strategies:
1. Understand trends. Stay informed about where DAFs are allocating their grants and tailor your outreach to align with these trends.
2. Increase visibility. Engage with DAF sponsors to ensure your organization is on their radar. Transparency and clear communication about your organization’s needs and impact can attract more DAF support.
3. Facilitate grant payments. Utilize modern tools like Vanguard’s Grant Payments to simplify the donation process and encourage more frequent giving.
*Giving USA 2024: The Annual Report on Philanthropy for the Year 2023 is a publication of Giving USA Foundation, 2024, researched and written by the Indiana University Lilly Family School of Philanthropy.
