The History of Donor Advised Funds

I love studying history. From recent events to ancient biblical history, it is important to know how we have arrived at where we are today.

Therefore, I would like to provide a little history of the donor advised fund (DAF). Many may know the charitable and tax benefits to using DAF, but DAFs are still underutilized by many. This is likely because DAFs are still relatively young from a historical perspective. Here is a brief history:

• In 1913, Congress passed the Revenue Act which exempted charitable organizations from paying federal taxes.
• In 1914, the world’s first community foundation was established in Cleveland, OH. The Cleveland Foundation’s goal was to pool donations into a coordinated investment and grant making and was dedicated primarily to social improvement of a given location.
• In 1917, the charitable deduction was expanded to include “religious, charitable, scientific, or educational institutions, provided there was no benefit accrued to any private stockholder or individual.”
• The first DAF was established in 1931, by the New York Community Trust and supported and sustained by John D. Rockefeller Jr. to allow individual donors to support charitable causes they were passionate about as opposed to grant decisions being made by the community foundation.
• In 1991, Fidelity Investments became a DAF sponsor, becoming the first commercial DAF, which accelerated the growth of the charitable vehicle.
• In 2006, Congress clarified the definition of DAF and its regulations in the Pension Protection Act. The DAF is defined in Internal Revenue Code 4966(d)(2).

In the most recent years, DAFs have continued to grow in popularity. According to National Philanthropic Trust’s 2018 Donor Advised Fund Report, over the past decade, donations to DAFs grew from 4.4% to 10.2% of total individual giving. Between 2016 and 2017, the number of funds increased by 60.2% and grantmaking increased by 20%. There are now nearly half a million donor advised funds with $110 billion in assets and donors who have a DAF are giving away nearly $20 billion per year!¹

As the use of DAFs continues to grow it is important that advisors not only understand the benefits of using a DAF but also how DAF sponsors support advisors. DAFs provide you easy tax planning abilities by combing all your client’s giving into one tax receipt. The Signatry’s Separately Managed Account structure allows you to maintain management of your clients’ assets. Learn more about how The Signatry can serve you.

 

[1] 2018 Donor-Advised Fund Report. (2019). Retrieved 24 October 2019, from https://www.nptrust.org/reports/daf-report/