Projections and Observations
Comparison of Projections and Results for 2013
In last year’s Donor-Advised Fund Report, we wrote that potential tax law changes from the “Fiscal Cliff” may have driven some donors to contribute to their donor-advised fund accounts. The timing of the “Fiscal Cliff” at the end of the year and the varying fiscal year-ends of the charities we track in this report meant that the data related to the “Fiscal Cliff” would be recorded over two fiscal years. Thus the 2013 Donor Advised Report included contributions for December 2012 from 42 percent of the funds tracked. We noted then that 58 percent of contributions went to charitable sponsors that have a June 30 year-end for their fiscal years and would be presented in this report.
This 2014 report includes contributions made in the last half of 2012 at a significant number of donor-advised fund charitable sponsors with July 1 – June 30 fiscal years. Consistent with our expectation, data for 2013 show a large increase (23.5 percent) in contributions. It is difficult to determine what share of that increase might be attributed to proposed tax law changes9 and what share reflects increased confidence in personal income and wealth resulting from steady and meaningful gains through 2013 in the stock market.
With increases in contributions made to National Charities in 2012, we anticipated growth in grants in 2013 and later. For 2013, grants from National Charities increased by 21.8 percent. As contributions have continued to rise and charitable assets increased with stock market performance, we project further increases in grants made from donor-advised fund accounts at National Charities will occur in 2014 and beyond.
What Lies Ahead?
The substantial growth in contributions to donor-advised funds at both Community Foundations and Single-Issue Charities was particularly noteworthy in 2013. Contributions to donor-advised funds at Community Foundations grew 9.9 percent. This rise is consistent with previous increases, but represents more widespread growth. For example, in last year’s report, single gifts to two community foundations increased donor-advised fund contributions at that sponsor type by 68 percent. These two gifts created a new, higher benchmark, so growth this year beyond the benchmark reflects a potential shift. At Single-Issue Charities, an increase in contributions of 24.5 percent is significantly higher than in the past, surpassing the historical average by a wide margin. As with the increase seen at National Charities in recent years, increases in contributions to the other two types of charitable sponsors predicts that there will be increases in grants in the future.
An increase in future grantmaking would also raise future grant payout rates. Grant payout rates have remained consistently high regardless of economic conditions, exceeding 20 percent for seven straight years. Based on the growth in contributions—all of which are irrevocable and can only be used for charitable purposes—and record highs in total grant dollars, we expect that the payout rate will rise in next year’s Donor-Advised Fund Report.
We also project that contributions to donor-advised fund accounts and the number of donor-advised fund accounts will continue to grow. Donor-advised funds remain the fastest-growing charitable giving vehicle in philanthropy. Total grantmaking from donor-advised funds of almost $10 billion and charitable assets of $53 billion are small relative to private foundations’ grants (estimated $54.7 billion) and assets ($614.9 billion). However, donor-advised fund growth outpaces that of private foundations year-over-year in nearly every metric. These numbers demonstrate the increasing popularity and awareness of donor-advised funds among philanthropists.
In NPT’s experience, contributing illiquid assets to donor-advised funds continues to be an increasingly popular trend. While the data we collect cannot quantify the percentage of contributions to donor-advised funds that come from illiquid gifts, we can report that in NPT’s experience it is a fast-growing type of asset that donors opt to contribute. Many charities that sponsor donor-advised fund are willing to accept these assets, such as real estate and tangible property. Typically, charities liquidate them relatively quickly and turn them into philanthropic dollars for grantmaking purposes. We expect that donors will continue to evaluate their noncash assets in their personal portfolios and increasingly contribute them to their donor-advised funds.
All types of donor-advised fund charitable sponsors reported growth in grantmaking, contributions, and charitable assets in 2013. Aggregate payout rates consistently above 20 percent since 2007 suggest that donors who create donor-advised fund accounts are actively using them to support charitable organizations and causes that are important to them, regardless of the economic climate. Creating a donor-advised fund allows donors to take an immediate tax-deduction when they make a contribution and plan their giving over time. The growth in the number of accounts, the increased contributions to donor-advised funds and the grantmaking that represents at least 2.9 percent of contributions made in the United States demonstrates that an increasing number of philanthropists are using donor-advised funds as their preferred charitable giving vehicle.
- The tax law proposals entertained in late 2012 were not adopted in 2013. As of late 2014, contributions to donor-advised funds remain tax deductible under the same terms that were in place in 2012.