And DAFs have become the number one charitable giving vehicle because of this cost-effective versatility and flexibility they offer donors. Donors can create multi-year commitments. They can build legacy giving by involving their families in new ways. They can also convert illiquid assets, such as real estate, into philanthropic capital. They provide an alternative to setting up private or family foundations, thereby reducing the administrative burden associated with these structures. Proponents also claim that DAFs have helped democratise philanthropy because donors do not need to be millionaires to open a DAFs. In fact, a person can open an account with as little as a $5,000 donation. 

Nevertheless, DAFs have yet to deliver on their democratization and charitable promises. DAFs often most benefit the world’s wealthiest, appealing to investors with capital gains, when most low to middle income people lack such assets. The average DAF donors remain individuals with annual income over $1 million, and the vast volumes of DAFs accounts belong to high net worth investors. And some of these wealthy individuals have been using DAFs solely as tax-saving schemes. Donors can actually avoid moving money to an active charity. So they can invest their money and immediately claim their tax breaks, whilst not sending the money to a charitable entity. As a result, society loses out on the public benefit of charitable giving, tax costs increase, and wealthy donors retain their tax benefits, control, and, ultimately, power.

And some are now calling DAFs  “the thing that ate philanthropy”. As more assets accumulate in DAFs, less money actually flows to charitable organizations that need it right now. The $85.5 billion invested in DAFs effectively represents a pool of patient capital that could be poured into charities that are currently addressing the world’s biggest challenges. And, yes, the advantages to donors are tremendous, but numerous worthy non-profit organizations cannot even access these assets, namely due to a lack of personal connections to these wealthy account holders. It is understandable why the non-profit sector is wary of the popularity of DAFs, as many accounts can serve as tax shelters with little regulations or accountability, especially when compared with the growing scrutiny and transparency demands placed on the charitable sector.

Interestingly, DAFs reforms are being proposed, such as requiring distribution of donations within a fixed number of years and implementing a delay in tax deductions until after the funds are distributed to active charities. However, supporters worry that such reforms would eliminate the positive attributes that make DAFs attractive. Others have suggested connecting DAFs with impact investing, to allow investors to align their portfolio with philanthropic causes they are passionate about and to address ongoing concerns that DAFs are “warehousing important philanthropic dollars.”

The future of DAFs remains unclear. They can become a flexible giving vehicle that unleashes socially-just and environmentally-friendly impact investing, but to do so, they require more regulations and scrutiny to prevent the wealthiest from abusing the system at the expense of societal good. In the end, philanthropy should go beyond the use or disuse of DAFs, which represent only one of many effective charitable vehicles. Thus, we would like to encourage you, and other charitable humans, to reflect on your beliefs and values about philanthropy, and to decide how best to ensure that your vision for a better world is actually realized. Then it becomes only about choosing the right vehicle to do so!