Friday, November 12, 2021

DAFs, Private Foundations, and Payout Rates

DAF_Special_Report_Cover_Landing_Page_Version_480x480While the Accelerating Charitable Efforts (ACE) Act appears to be stuck in the Senate Finance Committee, at least for now, that has not slowed the publication of studies focusing on donor advised funds, private foundations, and payout rates. This includes reports from Giving USA, the National Philanthropic Trust, and the American Enterprise Institute, along with the latest case study of a wealth individual's private foundation.

Giving USA released this week a special report titled Donor-Advised Funds: New Insights. Here is the description:

This new special report analyzes $74 billion in grant funds going to over 240,000 organizations, answering important questions like:

  1. What types of organizations receive grants from DAFs?
  2. How have DAF trends changed over time?
  3. How do trends differ among various types of DAF sponsoring organizations – for example, how might granting patterns at community foundations differ from grants at other types of DAF-sponsoring organizations such as national funds or single-issue charities?

Unfortunately it is only available on a paid basis, either as part of the paid annual subscription to Giving USA or separately.

The National Philanthropic Trust also just released The 2021 DAF Report. Key findings include:

  • DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $34.67 billion, representing a 27.0 percent increase compared to 2019 and a new high-water mark. This is the highest DAF grant increase in a decade.
  • The DAF payout rate was 23.8 percent, one of the highest payouts on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide.
  • Other key metrics, like contributions and charitable assets, also increased. These increases demonstrate that DAF donors are committed to supporting charities now and in the future.

And Howard Husock at the American Enterprise Institute has published America’s largest foundations: Examining payout rates and perpetuity. Here are its key points:

  • An examination of payout rates of the largest American philanthropic foundations reveals that the growth of their financial assets is significantly greater than the percentage of increased wealth distributed as grants. Foundation payout rates are also significantly lower than those of the individual charitable accounts known as donor-advised funds (DAFs), a growing philanthropic financial vehicle.
  • DAFs, their relatively high payout rates notwithstanding, have been targeted by proposed legislation aimed at increasing those rates. Large foundations, despite controlling far more wealth and distributing a lower percentage of assets, have not been singled out. The substantial increase in the assets and extent of US private charitable foundations over the past 10 years suggest that foundation payout rates might be increased in light of substantial asset growth. Ideally, America’s largest private foundations would do this voluntarily.
  • Foundations should, as best practice, seek to align grant payouts with asset growth, rather than settling for adhering to the 5 percent minimum.  In doing so, they could both better fulfill their mission and preempt what could be potential regulatory demands.  At the same time, asset growth should be the occasion for foundations to reflect on the perpetuity issue—and regulation should call for explicit indication as to whether foundations choose perpetuity and, if so, why.

Finally, in case anyone needs another real life example of how the wealthy use private foundations in their giving, the Institute for Policy Studies has posted an article (Phil Knight’s Billion-Dollar Philanthropy: Generosity or Self-Service?) based on a Bloomberg piece that is behind a paywall. The article focuses on "Nike founder and billionaire Phil Knight’s strategies to avoid estate tax and maximize transfers to his heirs and charitable foundations."

Lloyd Mayer

https://lawprofessors.typepad.com/nonprofit/2021/11/dafs-private-foundations-and-payout-rates.html

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