Donor Advised Funds and the Opportunity for Community Health Innovation
By Caryn Capriccoso, President & CEO, ReHealth Collaborative
From their humble beginnings in 1931 with the creation of the New York Charitable Trust, Donor Advised Funds (DAFs) have skyrocketed in popularity and prominence in recent years. More than 27% of all philanthropic gifts in the U.S. in 2022 went to DAFs. By the end of 2023, the amount of money in DAFs hit a record high of $251.52 billion.
DAFs have been a valuable evolution in the world of philanthropy for a number of reasons. Donors who know they want to make an impact through philanthropy but don’t have a fully developed giving strategy can benefit from putting funds in a DAF to let them grow over time. Some donors are drawn to the expertise, knowledge, or networks within the sponsoring organizations, such as community foundations or national public charities. It also offers a vehicle for multiple families or generations to collaborate with a single sponsoring organization on philanthropy which ideally could enhance philanthropic efficiency and impact. And of course it provides immediate tax benefits for the donor at the time of donation.
DAF ≠ Donate All Funds (According to the Numbers)
There is nothing inherently wrong with DAFs, but the industry that has emerged to drive the growth of DAFs seems to have developed a collective inertia in terms of moving money from these funds into nonprofit organizations, whether it be in the form of philanthropic grants or impact investments. In 2023, the same year that DAFs reached their record high value, while assets held in DAFs increased by 9.9%, total grants distributed from DAFs decreased by 1.4%.
The DAF payout rate—dollars granted during a given year as a percentage of total assets in DAFs at the end of the previous year—was 23.9% in 2023. Increasing the 2023 DAF payout rate to 30% would have produced an additional $14 billion in grants to nonprofits and impact-oriented organizations that deliver significant value to individuals and communities. Even a relatively small jump to a 25% payout ratio would have meant an additional $2.52 billion in grants.
Also, it is important to note that the median payout rate for all DAFs is 9%, indicating that many DAFs distribute money relatively slowly.
The Health Innovation Opportunity for DAF Holders and Sponsors
On the ground, at a community health level and a human services nonprofit level, there are massive needs for both immediate operational support and long-term investment. Many nonprofits face increasing community requests for support at a time when funding reductions and uncertainty are stretching already thin resources.
This presents a huge opportunity for DAF holders and sponsors to drive nonprofit innovation and support sustainability by putting more of their funds to work. Whether it’s through grants or impact investments, DAF distributions can fill some of the gaps we are seeing in our public health and community health infrastructure.
Impact investment is a crucial resource in the tool belt of donors who want to see their capital drive outcomes and have the potential to scale in a market-based environment. If you’re feeling cautious, check out this Mission Investors Exchange piece by Mike Silvestri of Social Finance that debunks some of the myths about funneling DAF funds into local impact investing pools.
There are growing calls for DAF funds to be more aggressively deployed as we face down continued destabilization of our health infrastructure. Some community foundations have implemented automatic allocations from the DAFs they sponsor into local impact investing pools. And movements like HalfMyDAF have sprung up to incentivize DAF holders and sponsors to distribute funds from DAFs to nonprofits more rapidly and in greater dollar amounts. We applaud DAF sponsors like Amalgamated Charitable Foundation, who implemented a 10% annual payout pledge to help ensure funds are directed to nonprofits and don’t just sit in a DAF account.
Ideally, DAF sponsors could do more to highlight the pressing needs, emerging opportunities, and potential outcomes that nonprofits and impact investments can help to achieve, in alignment with donor interests. The goal is not to pressure donors to distribute funds as fast as possible, but to inspire meaningful philanthropy by channeling the urgency that nonprofit organizations and their end beneficiaries are feeling in the present moment.
Make A Move
At ReHealth Collaborative, we understand the value that DAFs offer to individual and family philanthropists. And we encourage DAF donors to evaluate how they and their sponsor can grant more money to grantees more rapidly in order to address emerging community and health issues. ReHealth is building the infrastructure for our staff / organization to be able to help connect you with local and national causes that need—and are worthy of—your support, whether you have a DAF set up or not.
Later this fall, we expect updated data and statistics on DAF accounts and grant distributions to be released by the DAF Research Collaborative in the 2025 Annual DAF Report.
What story will those numbers tell? And how can we work together to move more capital into communities to power the work that makes us all richer?
