A Vital Pipeline: How Donor-Advised Funds Engage New Donors and Boost Communities

Editor's Note: As the debate over donor-advised funds heats up, we're keen to air all sides at Inside Philanthropy. This guest post is by the president and CEO of the Council of Foundations.

When thinking about donor-advised funds (DAFs) and the policies that surround their use, policymakers must stop focusing solely on the donation transaction. They need to better understand the many ways that communities derive value from community foundations, which use DAFs as one of many tools to engage donors and connect them with important causes. The Council on Foundations has over 500 community foundations as members. Every day, we work with community foundation professionals to advance the public understanding of place-based philanthropy and the important work made possible in communities around the globe.

For over 100 years, community foundations have served as charitable organizations created by and for a community of people. They are supported by local donors and governed by a board of private citizens who work toward the greater good for citizens in the community. Funds to support these missions come from a variety of sources and are invested for the enduring good of the community. Those funds get distributed to organizations and causes chosen by representatives of the community who serve on the board.

DAFs engage donors and nurture greater charitable activity in a community. For example, in a recent Urban Institute survey of funds managed by community foundations, more than 70 percent of foundations reported that the average age of a DAF donor is between 46 and 64 years old. 81 percent of foundations report that their donors remain involved in the foundation or their communities after donating. This is a strong signal that DAFs are attracting and engaging  donors and providing an important entry point for long-term community involvement. 

 At the heart of recent critiques of DAFs is a troubling and misguided effort to call into question the value of endowed philanthropy. The compulsion to “pay it out now” in order to address immediate needs is woefully shortsighted. Philanthropy doesn’t think just of the latest development, the next election, or the next business cycle. It has to think of the next generation. 

During 2010, when the country was in a recession and community needs were highest, many donors saw a drop in their incomes and foundations saw a decline in their invested assets. However, DAF donors were able to make gifts to local housing programs, workforce development efforts, and family service organizations because they had intentionally made their charitable donation during more prosperous times.

Far from allowing donors to “warehouse” their charitable gifts, DAFs allow donors to guide funds to future causes with intentionality and intelligent direction.

DAFs are part of a uniquely American philanthropic ecosystem—where donors from all walks of life use many types of giving tools to make charitable donations of all sizes to the charitable causes of both today and tomorrow. We must be wary of narrowing this rich philanthropic ecosystem without fully understanding the potential consequences. 

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