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Amid the Crises in 2020, DAFs Continued to Expand

Donors made large grants in the spring and summer to support both their favorite charities and those that addressed critical needs.

In spite of the pandemic and impact on the economy, 2020 was another banner year for donor-advised funds (DAFs). When the markets initially plunged, stay-at-home orders were issued and fundraisers were canceled, DAF donors stepped up to make large and critical grants in the spring and summer to support both their favorite charities and others that addressed critical needs.

When markets bounced back, donors continued to give, and year-end giving was again strong. Many DAF sponsors, including American Endowment Foundation (AEF), reported that their donors significantly increased grants to charities by 33% or more during the year.

Many DAF donors also contributed additional amounts to their accounts so they would have substantial assets from which they could quickly make grants in the future. Others who had not previously created DAF accounts opened them with the help of their advisors.

Though there was another effort to create legislation to pressure DAF donors to grant more, DAF donors proved that they didn’t need to be forced to make grants because they had already responded generously to the need that existed. Nonprofit organizations expressed their appreciation for the numerous DAF contributions that enabled some to continue to operate. 

Common Reasons

The common theme among most DAF donors was that they felt fortunate to be financially secure and wanted to share their good fortune with others. Some of the specific situations and reasons we heard from AEF donors and their advisors about why they established DAFs and granted from them this past year included:

  1. Their companies did very well, and their owners and executives wanted to give back.
  2. Their investments appreciated in value, and they saw that others in their communities had suffered.
  3. Business owners sold their businesses, and some donated a portion of the stock before the sale while others did so afterwards.
  4. They planned to sell their businesses this year so set up DAFs in advance.
  5. They wanted to engage their children to determine how their family could together address challenges in society.
  6. They decided to terminate their private foundations and open DAFs instead so more can go to the charities instead of foundation expenses.
  7. Certain family members disagreed with the mission or grants of their family foundation, so they created their own DAFs, and their new DAF received a “separation” grant from the foundation so they could make their own DAF grants to their preferred charities.
  8. To enable their adult children to give separately while they still gave together from the main family DAF, they created separate DAF accounts for the adult children.
  9. They created legacy DAFs to be funded from their individual retirement accounts after death instead of leaving IRAs to heirs and paying significant taxes.
  10. They wanted to create or fund their existing DAFs while approaching retirement so they could get a significant tax deduction while their income was high and they could still make grants for years to come.

Charitable Planning

Advisors were often instrumental in helping clients plan their charitable giving. The events of the past year affected clients to varying degrees. Some clients had never previously been charitable and wanted to begin, while others had always been very generous and wanted to go beyond what they had previously done. And of course, a small portion of clients had never given to charity and not even a pandemic would change that.

Many advisors always understood or more recently learned that the charitable conversation was helpful not only to the clients but also to themselves. They were able to talk with and further engage spouses, partners and children, which will enable them to continue to work with these family members after the wealth creator is no longer alive.

In the end, the charities and the people they help were the biggest beneficiaries of the generosity of DAF donors. Nearly everyone was impacted by the pandemic or knew someone who was, so these donors who maintained or increased their level of giving could take pride and comfort in knowing that they were able to make a difference.   

Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation donor-advised fund.

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