Projections and Observations
Comparison of Projections and Results for 2016
In last year’s Donor-Advised Fund Report, we predicted that growth in donor-advised fund charitable assets would result in greater grantmaking, which this year’s data supports. Grantmaking increased overall and at each type of charity that offers donor-advised funds. This also marks the third year in a row that grant growth has outpaced growth in contributions.
As part of our grantmaking prediction, we also noted that grants from donor-advised funds at National Charities would continue to rise. We see 6.5 percent growth in grants between 2015 and 2016. Grants from community foundations increased by 1.0 percent. The fastest rate of increase in grantmaking occurred at single-issue charities, at 10.6 percent.
In our last report, we predicted contributions to donor-advised fund would continue to rise but at a slower rate. This prediction proved correct for National Charities, where contributions increased 15.1 percent and for Community Foundations, which saw a growth of 4 percent in contributions in 2016, compared with 2015. This reverses a one-year dip in giving to donor-advised funds in Community Foundations between 2014 and 2015. For 2016, however, contributions declined at Single-Issue Charities. This shift was widespread, as giving to donor-advised funds declined at a more than half of Single-Issue Charities for which we have data for 2016.
What Lies Ahead?
The last several years have seen a tremendous growth in all donor-advised fund metrics, particularly in contributions. The five-year compound annual growth rate from 2012 to 2015 was above 20 percent. For 2017, the continued rise in the stock market suggests potential for increased giving to donor-advised funds. The introduction of a tax reform bill in late 2017 continues uncertainty about tax policy changes that, if implemented, could reduce the tax benefits of giving to a donor-advised fund.
As contributions slow, we predict a continued increase in grantmaking and a plateau in payout rates. Grants grew 5.7 percent between 2015 and 2016, compared with a compound annual growth rate of 18.6 percent over the prior four years (2012 through 2015). Grantmaking from donor-advised funds continues to reflects payout rates above 20 percent. Even with slow rates of growth in grantmaking, donor-advised funds will continue to make significant grants to charities across the United States.
In the past two or so years, we have noticed a shift away from donor-advised funds at Single-Issue Charities, with fewer reporting overall, a decline in the amount of new contributions made in 2016, and a high growth in the amount of grantmaking, perhaps suggesting a “spend down” process may be underway at some of them.
We are also seeing some Community Foundations and Single-Issue Charities that once reported separately on individual 990s are now managed and reported within a consortium. This includes the Indianapolis Foundation, now reported within the Central Indiana Community Foundation; donor-advised funds previously at several individual charities now managed under the Greater Kansas City Foundation’s umbrella; donor-advised funds previously at several individual charities now managed under the Chicago Community Trust’s umbrella; and a merger to form the Hampton Roads Foundation; as well as others.
This report does not collect data on the types of assets contributed to donor-advised funds. Based on our own experience and observed trends at our peer charitable organizations, we anticipate that donors will continue funding their donor-advised fund with appreciated stock, which is typically the most common type of asset contributed. We observe donors using other assets to contribute to their donor-advised funds, such as closely-held stock, real estate and personal property. This trend is part of the U.S.’s continued economic growth, where events like mergers and acquisitions, companies going public and increased real estate values are creating new wealth. We also observe a rapid increase in contributions of cryptocurrency. Whether this is a long-term or short-term trend is unknown. Additional regulations and security of this new type of asset may dictate how popular it will become. We anticipate that donors will continue to contribute assets beyond traditional securities in increasing numbers in the coming years.
The projections noted above are based on NPT’s experience and observations over the past year, and not on empirical data collection.
All types of charities that offer donor-advised funds reported growth in most key metrics in 2016. Grantmaking increased by almost 6 percent. Aggregate payout rates have been near or above 20 percent since we first started collecting data in 2007. This suggests that donors who use this type of charitable giving vehicle are supporting philanthropic organizations and the public good with a consistent level of grantmaking, regardless of economic conditions.