Donor Advised Funds in Canada, Australia and the US: Differing Regulatory Regimes, Differing Streams of Policy Drift

2.1 DAFs as Pseudo Foundations

Some donors value both the meaning (the giving decisions) and ongoing management of their giving: they are prepared to be ‘hands-on’ in tending to their DAFs over time. In effect, the DAF serves as a ‘pseudo-foundation,’ particularly for affluent, but not ultra-wealthy households, whose assets do not justify the costs of establishing and managing a separate legal entity. Indeed, the efficiency benefits of DAFs over foundations are widely advertised by DAF sponsors (National Philanthropic Trust 2021) So, too, are the benefits of intergenerational learning and engagement in philanthropy via active involvement of younger family members (National Center for Family 2020). If donors are starting with modest contributions and disbursements, planning to grow the fund assets over time, low costs of entry and annual management fees and no mandatory requirements for annual payouts may matter.

As a donor prepared to be actively engaged in asset management, the ability to advise on investment strategies – another feature widely advertised by US sponsors associated with financial institutions – may be attractive. Such involvement may be particularly valued by the small but expanding segment of donors who want to pursue impact investing or oversee ethical, responsible investing (Baker, Barraket, and Elmes 2016). As a learning project, access to advice about giving choices may be valued, and when donors seek to ‘give where they live,’ DAFs are likely held at community foundations.

The potential risk in this scenario is that an “endowment effect” (Kahneman, Knetsch, and Thaler 1991) sets in: the donor may gain a strong sense of ongoing ownership which results in a reluctance to disburse funds, instead putting an emphasis on growing the asset. This possibility is implied in the finding by Heist and McMullen (2019) that payout rates at community foundations are lower than at other types of sponsors.

When DAFs function as pseudo-foundations several factors are likely to favor the use of DAFs over direct charitable giving or other means of structured philanthropy:

2.2 DAFs as Tax Savings

At moments of sudden acquisition of wealth through punctate events that produce significant capital gains, such as sale of a business or professional practice or liquidation of shares, DAFs are particularly convenient. At such times, tax minimizing concerns tend to be central (Colinvaux 2017; Gelles 2018). Indeed, Andreoni (2018) provides evidence that in the US saving on capital gains taxation is a key reason for using DAFs. The largest US holder of DAFs, Fidelity Charitable (2015), indicates that, among its own clients, 78 percent named this as the main motivation for starting a DAF.

In this scenario, the speed and ease of making the gift is important as the donor may be consumed with other business matters and may have little knowledge or time to reflect on which causes or charities to support. Thus, the donor wants to postpone specific giving decisions, while keeping options open. The donor likely relies on advice from an existing wealth advisor who, if affiliated with a financial services firm, steers the donor to its DAF arm (Strategic Insight 2018). With speed and efficiency as primary considerations, entry and management fees matter little, although this donor may later be concerned with mandatory annual payout requirements or the ability to make transfers from one DAF to another.

A key public interest concern in this scenario is whether donors continue to be attentive to their accounts, directing payouts in a timely manner and in significant amounts. This has generated a flurry of attempts to measure annual payout rates, which reach differing conclusions. Heist and McMullen (2019) report that DAF payout rates – a median of 13 percent across multiple US sponsors – are higher than those of private foundations, although these vary significantly across different types of sponsors, with higher payout rates at the larger ones. As Andreoni and Madoff (2020) demonstrate, however, how disbursement rates are measured makes a significant difference, and in 2017 a quarter of DAF sponsors distributed less than five percent of their assets.

2.3 DAFs as Privacy Protection

For what may be a small subset of donors, the main concern is with the ability to make gifts anonymously, which is permitted by DAFs. There are several reasons that anonymity might be valued, some more honorable than others. Religious or cultural considerations might discourage taking credit for giving. Particularly in small communities, families might not want their wealth to be widely known. Once known as generous, a donor may seek to avoid becoming the target of multiple, unwanted requests from other charities. Perhaps one is giving to a cause that the donor would rather keep confidential: the secret of giving to Planned Parenthood from one’s Catholic mother, for instance. Or, a donor may want to avoid public scrutiny of funding for certain causes through more covert “identity laundering” (Cantor 2015: 114).

For a DAF holder who also has a foundation, one means of protecting privacy is to transfer funds from the foundation to a DAF and then gift from the DAF, or alternatively retain funds in the DAF in order to satisfy the foundations’ disbursement quota. While it is difficult to accurately assess the degree of such transfers, a study by the Economist (2017) reported that in a sample of 4000 US foundations, 40 directed funds to the largest DAF providers and that 11 of these gave over 90 percent of their annual allocation to DAFs.

The choice of a DAF over another vehicle of structured philanthropy or direct giving is obviously more complicated than depicted in these three stylized scenarios. While the prevalence of the tax-savings scenario the US has been documented (Andreoni 2018; Colinvaux 2017), the absence of data at the account level makes more nuanced assessments of other motivating factors difficult. However, we are not claiming to accurately test the relative influence of each type of donor. Rather, our aim is to identify and consolidate from the existing literature the aspects of DAFs that would be affected through regulation, examine how each of these might affect DAF usage in the three countries, and consider the effects on the need for and potential of regulatory reform.

5.1 The Supply Side and the Culture of Philanthropy

The DAF infrastructure in all three countries involves community foundations, financial services-affiliated and single purpose sponsors, but in different mixes, notably in the relative presence of community foundations. We argue this affects donors interested in treating DAFs as pseudo-foundations, who will be incentivized by the availability of community foundations. Relative to population, the coverage by community foundations is higher in Canada (1: 196,000) than in the US (about 1: 410,000) and both are much higher than in Australia (1: 638,000). In the US and Canada and, to a lesser extent in Australia, community foundations played a pivotal part in the establishment and expansion of DAFs. The first fund that provided donors with the ability to make granting recommendations to the sponsoring institution was established in 1931 as a foundation administered by the New York Community Trust, and DAFs gained in popularity in the US during the 1950s although still mainly held by community foundations (Berman 2015; Brunson 2020; Watts 2018). That changed dramatically after the first commercial investment firm, Fidelity Charitable, entered in 1991, soon followed by others, so that “commercially” affiliated sponsors now dominate. In 2018 they held almost 60 percent of total DAF assets compared to 28 percent at community foundations which have experienced a significant decline from their 36 percent share in 2015 (National Philanthropic Trust 2020).

Canada shadowed the US with a lag of about 20 years. DAFs were first offered in Canada in 1952 by the Vancouver (Community) Foundation; financial institutions (mainly bank-affiliated) entered in the early 2000s, and the supply quickly expanded and diversified to include fund companies and investment firms. With increased competition, community foundations have actively sought to distance themselves from their more commercial peers and attract a broader range of donors by advertising their education and information services, lower costs of entry and management fees, and that they can make advisors “look good” to their clients (Calgary Foundation 2020). Although growth rates of DAF funds at community foundations have remained strong (39 percent in 2018), they have lagged the financial services and single purpose sponsors. In 2018, the 191 community foundations held about 27 percent of total DAF assets, which is comparable to the US (National Philanthropic Trust 2020) and slightly higher than Australia, but down significantly from their 53 percent share held in 2016.

DAFs are a more recent development in Australia. Most of its 39 community foundations were established after 2000 (Australian Community Philanthropy 2020; Leat 2004) and the option of sub-funds required legislative and regulatory change creating the category of Public Ancillary Funds (PuAFs) which can solicit funds from the public and enable donors to establish funds in their own name (O’Connell 2002; Williamson 2019). In spite of a later take-off, DAFs quickly became accepted as a vehicle of structured philanthropy, growing to almost 2000 accounts by 2018 (Siebert 2019). Community foundations hold about 25 percent of total sub-fund assets while trust (diversified financial services) companies, which operate separately from banks, manage an equivalent percentage. Although the DAF funds managed by community foundations (A$415 million) grew by 62 percent from 2013 to 2019 (Australian Community Philanthropy 2020), this remains a relatively small amount -- well below the fund assets managed by the five largest Canadian community foundations.

The culture of philanthropy – and how it is viewed by donors, their peers and the public – affects how people give and is embedded in charitable tax incentives. Here, too, are marked differences. The philanthropic culture of the US is premised on individualism and reflects a positive view of wealth – that wealth, particularly when earned rather than inherited, is a “universal measure of achievement and success” (Wright 2001: 408; also Wolpert 1993). Giving is viewed as “generosity” rather than altruism, and is extolled to encourage further generosity (McDonald and Scaife 2011). Giving co-exists with self-aggrandizement (Schneider 1996) and is “interlaced with self-interest” (Wright 2001: 413). This individualism was incorporated into the creation of the charitable contribution deduction whose intent, Duquette (2019: 554) argues, was to “protect voluntary giving to public goods by rich industrialists who had made their fortunes in business.” By design, the incentive still disproportionately benefits wealthy households.

Australia’s culture of philanthropy, as reflected in media reporting (McDonald and Scaife 2011) and as a consistent theme in our interviews, is more equalitarian. It values “mateship” and being quick to help others as “something we just do,” particularly in times of disasters, and it creates a reluctance to stand above the collective (McDonald and Scaife 2011; McGregor-Lowndes and Williamson 2018). Wealth or a person’s financial achievements are not celebrated (Leat 2004; McDonald and Scaife 2011: 314), rather the culture eschews boasting about wealth or giving it away in a public manner. This “tall poppy syndrome” – standing too tall above the rest warrants being cut down to size – may be waning (Smerdon 2015), but the Australian interviewees almost uniformly raised it as a key aspect of philanthropic culture and reinforced the cultural value of protecting privacy in giving. An emphasis on collective public benefit is further evidenced in tax incentives and regulation. The designation of charitable status, as recognized in common law and institutionally by the Australian Charities and Not-for-Profits Commission (ACNC) is separate from eligibility to provide tax receipts for charitable gifts, which is accorded by the tax office. The subset of charities with status as Designated Gift Recipients (DGRs) must meet a public benefit test, now established in charity legislation, and a formal responsibility of the ACNC is to promote “trust and confidence” in the sector (McGregor-Lowndes and Wyatt 2017).

A Canadian philanthropic culture is less well defined, or at least is not widely discussed by the media nor identified in academic literature or in our interviews. Indeed, the host of a popular national radio program once ran a contest to name the Canadian identity, with the winning entry being “as Canadian as possible under the circumstances” (Little 2007: 17). We might infer, then, that the Canadian philanthropic culture sits somewhere between the individualistic American and more equalitarian Australian. Rather than focusing on the very wealthy, the charitable tax incentive, introduced during WWI, was intended to encourage the public to support specific government objectives with broad participation across the population (Watson 1985). Over time, it was been become very generous with a continuing view to encouraging participation by people of modest means. The accompanying regulatory approach aims to balance growing philanthropy with protecting the integrity of the tax system (McGregor-Lowndes and Wyatt 2017). In terms of policies governing DAFs, Canada has tended to be a decision taker, rather than shaper, generally following the US albeit it with some important differences.

The implications are that the collectivist/public benefit culture of philanthropy in Australia has inhibited the creation of a regulatory system favoring the tax savings motivated donor, but that the more limited availability of community foundations has also dampened the use of DAFs as pseudo-foundations. Differences in the specific aspects of DAF regulation are examined in the rest of this section.

5.2 Entry Thresholds and Management Fees

The minimum size of initial contributions and continuing fund balances vary greatly within each country. Community foundations tend to have lower thresholds than financial institutions, although the largest US players, Fidelity and Schwab Charitable (2017), recently reduced minimum initial contributions to zero. In general, initial minimums tend to be higher in Australia than the US or Canada, particularly at community foundations, as indicated in Table 3. In order to be competitive, many Canadian community foundations have reduced the cost of entry in recent years, from an average of $10,000 to $5000 (sometimes lower), bringing them in line with their US counterparts. At most Australian community foundations, the entry amount is A$20,000 with some setting the threshold even higher at A$50,000 (McLeod 2018).

Administration and investment fees are also highly variable and cumulative, usually lower the larger the asset under management. Even with low initial contribution thresholds, the combined fees may discourage middle-income donors with smaller accounts (Andreoni 2018). As with entry thresholds, Australian community foundations tend to have higher management fees than their North American counterparts. While at a representative Canadian community foundation, fees range between 80 and 125 basis points on fund assets (lower with larger funds), those at a typical Australian community foundation range between 50 basis points for funds over A$2.5 million to 220 basis points for funds with assets below A$500,000 (authors’ calculation).

In short, sub-funds available to Australian donors through community foundations require a higher level of assets and are more costly to maintain. In North America, the participation of single-purpose foundations associated with major financial institutions and their broad networks of financial advisors have forced community foundations to adjust their costs downward. It is reasonable to expect that as the community foundation movement develops in Australia, and as competition for donor dollars from trust companies becomes more intense, Australian community foundations will seek ways to enhance their appeal. As in North America, however, it seems likely that the fastest growth of DAFs (in terms of undistributed assets) will be by those supported by networks of either independent or affiliated financial advisors.

In spite of the now very low entry thresholds in the US and Canada, the popular notion that DAFs serve as the “poor person’s foundation” (Colinvaux 2011) and that they have significantly democratized giving has to be challenged. The average amount held in DAFs in the US is variously estimated to be $167,000 (National Philanthropic Trust 2020) and $300,000 (Moffett 2018), and in Canada is about $200,000, although these averages can be skewed by very large and very small DAFs. While the “average” Canadian donor gives about $1600 a year (claimed as tax receipted), our research indicates that the average donation to a DAF is about $50,000, albeit lower at some community foundations. Australia more formally sets the entry bar in this range. It would take the average donor, contributing $1600 annually (assuming a five percent compounded return and no disbursements) 40 years to build a $200,000 account. The limited (and declining) use of DAFs by small donors, and the diminishing share of DAF assets by community foundations, is partly driven by the growing presence of financial advisors, particularly those associated with financial institutions. Advisors power the creation of new funds and, as we learned from the interviews, are increasingly focused on clients with a minimum portfolio of $100,000 or those facing liquidity events.

5.3 Involvement in Asset Management

The extent to which donors can advise on the investment side of DAFs differs radically in Australia from the US and Canada. The US framework is explicit that donors retain advisory privileges over how assets are invested, as stated in the definition of a DAF in the tax code (Hussey 2010; Internal Revenue Service n.d.; Madoff 2014). Donors can retain the services of their own investment managers who, in turn, contract directly with the foundation. The 2021 California court case of wealthy former hedge fund managers, Emily and Malcolm Fairbairn, against their DAF sponsor, Fidelity Charitable, had the potential to strengthen donors’ legal rights over the ongoing management of funds (Grumet 2021; Sullivan 2019). The Fairbairns contended that Fidelity Charitable managed the sale of their donated securities in contradiction of their advice, which resulted in devaluing the share price and reducing their tax benefit. The court ruled in favour of Fidelity, however, finding there had been no evidence of broken promises or negligence (Rubin 2021). The Canadian practice generally follows the US model where the donor retains some influence over how DAF assets are invested, but this is by practice rather than codification as there is no statutory definition of a DAF and no regulatory guidance on how DAF assets should be invested or guided by account holders. Sponsoring foundations have stepped in with contractual arrangements on asset investment, which generally focus on capital preservation and give donors and their advisors discretion over specific product selection, although these policies vary from sponsor to sponsor (Strategic Insight 2018: 46).

In contrast, Australia requires that sub-fund assets within a PuAF be pooled and invested collectively. Because investments associated with individual accounts do not exist, it is not possible for donors to provide advice over how ‘their’ personal assets are managed. The spirit of this practice is loyal to the public nature of PuAFs that operate under terms of public administration of donations (Australian Taxation Office 2004: 4). The benefit of pooled assets is that it creates the potential scale for sophisticated investment policies that could generate a better risk and return trade-off, as well as cost-effective asset management. Pooled assets also better enable sponsoring foundations to allocate a portion of the portfolio to impact investing, thereby putting dormant assets to work for public benefit. In Canada impact investing is still limited (but expanding), currently offered for DAFs mainly by community foundations; where available, donors have to opt-in to participate. Conversely, Australia’s stipulation of pooled assets means that when the sponsors – primarily community foundations – choose to participate in impact investing, by default all sub-fund donors participate. Representatives of the trust company sponsors we interviewed indicated that impact investing could contradict their obligations for ‘prudent person investing,’ so most have not yet ventured into this territory. Overall, participants had mixed views on pooled assets: an advantage being the benefits of scale for smaller funds, while a disadvantage is that wealthy donors, confident in their ability to manage assets and reluctant to relinquish such control, may opt for a Private Ancillary Fund (PAF, equivalent to a private foundation) over a DAF.

About a quarter of the respondents noted their growing concern over the potential for conflicts of interest and private benefit for advisors and DAF sponsors affiliated with for-profit entities, pointing to a need for a more serious examination of the investment side of DAFs. Wealth advisors are key players in promoting philanthropy and are required to act in the best interests of their clients, but in the case of DAFs, since the funds have been gifted to the sponsor, who is their client? The issue is particularly complicated when the donor’s advisor is employed by the investment firm or bank affiliated with the sponsoring foundation. Given that financial services firms profit from having more assets under management in their own products, advisors employed by a ‘commercial’ sponsor stand to gain from dissuading donors to make large disbursements (Economist 2017). It is estimated, for example, that Fidelity Investments receives about $60 million in fees from the DAFs held in its charitable foundation and that 60 percent of its DAFs are invested in Fidelity funds (Gandel 2019).

5.4 Disbursement Requirements

None of the three countries impose minimum annual disbursement requirements on individual DAFs, but Canada and Australia place such quotas on the sponsoring foundations, with Australia being more restrictive in also applying a public benefit test. Although the US requires an annual disbursement quota of five percent by private foundations, it has no such rule for public charities which include DAF sponsors. Canada applies the same disbursement quota, 3.5 percent, to all registered charities. Australia has differential rates of five percent for PAFs and four percent for PuAFs including sub-fund sponsors. For all three countries, it is up to the sponsoring foundation to limit free riding: that is, to ensure some funds are not dormant while others have high payouts that, when averaged, enables the sponsor to meet any mandatory annual disbursement quota. Research from both the US and Canada indicates that the average payouts are well above 5 percent (Heist and McMullen 2019; Strategic Insight 2018). In terms of donor motivation, our interviews overwhelmingly indicated that disbursement quotas on sponsors are not a determining factor in selecting or avoiding DAFs.

A related issue is whether ‘circular’ transfers – from DAF-to-DAF or foundation-to-DAF – are permitted. The US and Canadian regimes permit both types of transfers, while the Australian model is more complicated. Charities that have been conferred DGR status are further classified as DGR-1 (thought of as ‘doers’) or DGR-2 (‘grantmakers’). To ensure that tax privileged assets are always disbursed to ‘doing’ organizations, grantmaking DGRs including sub-fund sponsors can only gift to operating (DGR-1) charities. Therefore, distributions are not allowed from a private or public ancillary fund to another ancillary fund (Murray 2020).

A legitimate reason for DAF-DAF transfers is that the account holder thinks the current sponsor is unsatisfactory and moves to another, referred to as ‘portability.’ A foundation-DAF transfer might occur in the process of winding up the foundation. An additional example of how transfers are used for ‘manageability’ purposes was provided by a Canadian donor who made a contribution of complex assets to a DAF at a ‘commercial’ sponsor in order to use its expertise to liquidate the assets, and then disbursed the proceeds to a private family foundation for future management. The reason that has been of greatest concern to DAF critics is that such transfers enable a foundation to meet its disbursement quota without actually grantmaking to charities. Evidence of such circular flows is debated, although a US study that tracked $22 billion in grants from 2012 to 2015 found that 4.4 percent of dollars granted from DAFs were directed to other DAFs (GivingUSA Foundation and Lilly Family School of Philanthropy 2018: 29), representing $968 million. Another study of 375 US foundations found they moved more than $740 million to DAFs in 2018 (Gunther 2020a). The Canadian DAF sponsors told us that less than five percent of total annual disbursements go to other DAFs or private foundations, including the portability of entire accounts. Yet, in a study of the 38 largest family foundations (holding assets over C$100 million), Phillips (2018: 7) found that four made substantial grants to sister foundations or DAFs.

The views of the respondents on the value of restricting such transfers is divergent. Most Canadian interviewees cautioned on balancing increased administration with the supposed benefits of additional oversight. Several of the Australian interviewees were critical of the limitations of the DGR-1 and DGR-2 restrictions because they do not allow PAFs to disburse to community foundation endowments. However, others disputed that this was a significant constraint for large community foundations because most have dual structures – one with DGR-2 status and another as a DGR-1 that could accept such transfers. This arrangement makes the system complicated and less than transparent.

5.5 Tax Incentives and the Treatment of Capital Gains

The treatment of capital gains on donations is the major factor that sets the North American systems apart from Australia. The US and Canada tax capital gains as part of income, although with somewhat different schemes, and both give exemptions on capital gains if the property is donated to a charity, foundation or DAF. In addition, the donor receives a charitable receipt for the fair market value of the property or securities at the time the donation is made. Consequently, donating an asset (including securities) to a DAF has a significantly lower net cost to the donor than selling the asset and gifting the cash. Donating securities further changes how donors engage in philanthropy. If the intended charities do not have the capacity to receive securities or lack access to brokerage accounts, or if the proceeds are to be granted out over time or to many different beneficiaries, a DAF is a convenient mechanism to receive and liquidate the securities and distribute the proceeds. A difference between the two countries, however, is that the US allows deductions for donations of private shares and real estate, whereas Canada does not.

In Australia, people can donate securities to sub-funds (with DGR status), taking a receipt for the full value – but without an exemption for the capital gains. Interestingly, none of the Australian key informants said that there is strong pressure to institute a capital gains exemption or additional tax incentives. Indeed, aligned with the overall culture of philanthropy, 90 percent felt such a tax incentive would not be well received. The privilege inherent in having accrued capital gains in the first place and then rewarding the donation, would likely not pass the ‘pub test’ (how members of the general public, present at any corner pub on any particular day, would respond) because it would be seen as double-dipping. Rather, they believe the tax incentive for the fair market value of the securities, which could then be used to offset the deemed capital gains inclusion, is sufficient.

The US tax system not only offers stronger tax-savings incentives by applying the capital gains exemption to a wide variety of assets, it incentivizes the use of DAFs over foundations in several ways. First, it provides higher tax deduction limits for gifts of cash, stock or real property to public charities, which includes all DAF sponsors, than to private foundations (Steele and Steuerle 2015). In contrast, the Canadian and Australian charitable tax incentives are the same regardless of whether contributions are made to operating charities, private foundations or public foundations (assuming DGR status in Australia). In addition, on gifts other than publicly traded shares, the US applies the (appraised) fair market value to DAFs while only the original purchase price is allowed for private foundations.

Second, the US system creates an incentive to ‘bunch’ charitable contributions in a particular year. Whereas Canada and Australia require receipts for all charitable contributions claimed as credits in tax filings, the US offers a standard deduction, a threshold that was almost doubled in President Trump’s 2018 tax bill. The dramatic 150 percent rise in the number of DAF accounts created from 2016 to 2018 and over 50 percent growth in assets has been linked to the anticipation of the loss of itemization under the Trump tax bill (Rooney 2019). Only if US tax filers are eligible for deductions in excess of the standard limit (US$12,000) are itemized receipts required; for those below there is no marginal benefit for making charitable deductions. The way to enhance the tax incentive is to make large contributions in excess of the threshold in certain years and reduce donations in other years (Carrns 2017). Flowing the consolidated contributions through a DAF allows the tax filer to optimize tax incentives and still maintain steady cash flow to the receiving charities.

Third, Charitable Remainder Trusts (CRTs) have been popular in the US, but are rarely used in Canada or Australia given that there are no estate taxes. A CRT is a tax exempt, irrevocable split trust, one portion of which provides annual payments for life to the contributor and a remainder that is a tax-receipted charitable gift. The use of a DAF as the beneficiary is widely advertised by the large financial services sponsors as providing flexibility and removing the pressure of identifying the ultimate recipient charities at the creation of the CRT (Kinaitis 2020). Canadian and Australian tax rules create more drawbacks than benefits of CRTs, while offering generous tax benefits for estates (Burrows 2020).

The results in the US, as Andreoni (2018) and Colinvaux (2017) observe, are that DAFs have become magnets for tax savings on capital gains, and this benefit is widely advertised by the foundations associated with the large financial investment firms. In the Canadian context, all the interviewees agreed that DAFs are being used in this way, but with a more modest take-up. While 5.5 million Canadians claimed a charitable contribution on their 2014 tax return (Statistics Canada 2018) and about half that amount (2.6 million or 7.3 percent of tax filers) reported taxable capital gains, only 5400 claimed the capital gains tax exemption for charitable contributions of securities, representing 9.3 percent of total charitable contributions (Government of Canada 2017: 212). Thus, there appears to be substantial room for more Canadians who already give to charity to take advantage of the capital gains exemption. Without a capital gains exemption on donations in Australia and, given the relative ease of setting up a PAF that has the same tax advantages, the attraction of DAFs as tax savings vehicles is significantly reduced. Indeed, in a study of ultra-HNW entrepreneurs, Williamson and Scaif (2013: 5) found that PAFs were the giving structure of choice and outweighed sub-funds more than 2 to 1, although by 2018 the number of sub-funds had surpassed the number of PAFs (Seibert 2019).

5.6 Provisions for Anonymity

The option to give anonymously from a DAF exists in all three countries, thus any differential effects of this aspect are difficult to assess. Concerns over anonymity have been raised from both a principled and practical perspective, however. As a matter of principle, do donors who have received public subsidies for their gifts have a right to privacy? Do the recipients and public have right to know the source of grants? From a practical perspective, what if the gift is from a donor that the charity, for whatever reason, would not knowingly take a donation: do they need to turn down all anonymous gifts? In terms of good practice, such anonymity might hamper charities’ ability to build relationships and engage with donors over time (Lilly Family School of Philanthropy 2020; Martin, Buteau, and Gehling 2020).

Although possible in all three countries, the US system creates greater incentives for the use of DAFs by those who want to fund advocacy and policy work, masking their identity in doing so.^[4] It is estimated, for example, that in 2010 a quarter of the donations for the anti-climate change lobby in the US came from a single DAF which could remain anonymous (Brulle 2014). In 2019, reports emerged that DAFs held at four of the largest US investment firm-affiliated sponsors had contributed (anonymously) millions to organizations classified as ‘hate’ groups (Kotch 2019). If such causes were funded through a private foundation, the gifts and recipients would have to be publicly reported, whereas the use of a DAF provides a shield between donor and recipient.

The lack of transparency on individual accounts makes the extent of intentional identity concealment difficult to uncover. However, DAF sponsors such as Fidelity Charitable (2020) estimate that only three percent of US donors choose the anonymity option, and thus dismiss this as a serious regulatory concern. The Canadian DAF sponsors we interviewed put the preference for anonymity at about five percent of account holders. What we heard in an almost unanimous voice from the Australians is that privacy matters to enough donors that it should remain protected when requested. As a regulatory matter, anonymity is a tough one because the funds actually belong to the sponsoring foundation, so it may be difficult to compel them to identify donors.