If you care about philanthropy, leave DAFs alone
When Hurricane Ida struck last year, it left people in entire swaths of Louisiana in dire straits. Even before the final level of damage could be assessed, evacuees needed to be housed and fed, clean-up and recovery efforts needed to begin, and trauma relief support systems needed to be put into place. As has so often been the case in American history, nonprofits swung into action alongside the government to help provide that relief and were able to quickly direct emergency funds to Ida’s hardest hit victims.
Many nonprofit relief and recovery agencies were able to respond swiftly and effectively because they had received substantial contributions from Donor-Advised Funds (DAFs). DAFs are like investment accounts for charities, allowing donors of all levels to commit contributions to a charity and watch their funds grow over time for greater impact when the funds are needed.
When it came to Ida relief, DAFs were responsible for more than half of the contributions directed to local needs through the Jewish Federations of North America’s relief efforts.
That was no surprise.
Local Jewish federations and Jewish community foundations, which we represent, sponsor tens of thousands of DAF accounts that allow for the deployment of millions of dollars of swift and flexible allocations when needs arise. Jewish family service agencies, vocational training programs, food pantries, domestic violence shelters, and other institutions represented by the Network of Jewish Human Service Agencies receive millions of dollars of funding from DAF allocations. Those contributions are used either for isolated emergencies or to sustain ongoing but critical programs.
In every major emergency in recent years, from the mass shooting at the Tree of Life Synagogue in Pittsburgh to the COVID-19 global pandemic to the current Hurricane Ian response in southwest Florida, DAFs have helped drive massive levels of philanthropic relief.
Furthermore, DAFs are among the most popular and effective philanthropic vehicles, especially for those who cannot afford to establish private foundations. The vast majority of DAFs are held by donors of relatively modest means. Take, for instance, the Jewish Communal Fund, the largest sponsor of DAFs in the Jewish philanthropic world. In 2021, JCF held 4,250 accounts with a median balance of $28,674.
But DAFs could be on the chopping block if the Accelerating Charitable Efforts (ACE) Act, which a few lobbyists and members of Congress are pushing to advance, were to pass. This misguided piece of legislation would limit DAFs, discourage donations, and result in substantially less money going to those in need. Proponents of this kind of “reform” mischaracterize DAFs as enabling donors to “hoard” or “park” money rather than donating it to charity, since there is no time limit on when distributions need to be made. Putting restrictions on DAFs could pave the way to their elimination.
This would be a huge loss for Jewish communities and our partner agencies throughout the country. DAFs encourage donors and their families to develop long-term giving plans and ensure that charities have the resources to realize their philanthropic visions far into the future. The funds in a DAF, which are invested in the stock market, naturally tend to increase over time. This enables donors to help substantially more than they would have been able to if they had not waited for their holdings to appreciate. They can also specify that the funds be distributed according to their wishes by their children and grandchildren, thereby perpetuating inter-generational philanthropic commitments.
DAFs are also much nimbler than foundations; donors can expedite the giving process by donating right away to a group or community in distress anywhere in the world. Because they are more flexible and broad-based, DAFs are much more likely to help a broader range of causes and address emergencies in a timely way than a foundation with its set priorities, board of directors, and scheduled meetings. DAFs were particularly effective in alleviating suffering during the early part of the pandemic; the Donor-Advised Fund COVID Grantmaking Survey found in 2021 that giving from DAFs to qualified charities increased by almost 30 percent, to well over $8 billion, from the first six months of 2019 to the same period in 2020.
Despite critics’ claims that DAFs become warehouses for philanthropic dollars, they have repeatedly proven to be greenhouses for charitable giving. The National Philanthropic Trust found in 2020 that of the approximately one million individual DAFs with total assets of about $160 billion, about $35 billion, or roughly 22 percent, was paid out, an increase of 27% on a year-by-year basis. Moreover, at least 20% of DAF’s are liquidated each year, with the money going straight to nonprofit groups.
Policymakers should enhance tax incentives for DAFs — not restrict them — and fortify these philanthropic vehicles by encouraging best practices, especially when the effectiveness of DAFs has been so well established. When the next natural disaster or other crisis strikes, we need to ensure that victims get all the help that they need, including from the huge numbers of private donors who created DAFs precisely to share their resources with those less fortunate.
Eric Fingerhut is president and CEO of the Jewish Federations of North America. Reuben Rotman is president and CEO of the Network of Jewish Human Service Agencies