Giving Compass' Take:
- Andrew Hastings explains the donor-advised fund (DAF) payout rate and how DAF donors have shown consistent, long-term commitment to supporting nonprofits.
- How can nonprofits utilize this information about the DAF payout rate? Why is the DAF payout rate higher than that of private foundations?
- Read more about donor-advised funds for charitable giving.
What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
Those of us who work with donor-advised fund (DAF) donors every day know that they are caring, committed, and creative givers. We also know they use DAFs for both their long- and short-term giving. This has never been more apparent than in the past year, when grantmaking from DAFs skyrocketed in response to the COVID-19 pandemic. While generosity is not a calculation, the DAF payout rate is an important philanthropic benchmark.
What is the DAF payout rate?
The DAF payout rate is a calculation of grantmaking dollars awarded from DAFs to charities relative to the total charitable assets in those DAFs. More simply: it's how much DAF donors granted compared with what they could have granted.
How should we calculate payout rate?
Candid uses a formula to estimate payout from private foundations that National Philanthropic Trust (NPT) replicates in our annual Donor-Advised Fund Report. The Candid formula is:
This year's grant $$ ÷ Previous year's charitable assets = payout rate
For 2019, the latest year for which aggregated data is available, the formula is:
FY19 grants ÷ FY18 charitable assets
or $27.37B ÷ $122.18B = 22.4% payout
NPT uses the Candid formula for several reasons. First, like DAFs, private foundations are widely used giving vehicles for both short- and long-term philanthropy, so using the formula creates a useful point of comparison between the two types of vehicles.
Second, the formula is not just an industry standard, it's practical. The Candid formula reflects common budgeting techniques — that is, plan for the current year based on the prior year's income and expenses and factor in the remaining balance (if any).
Third, other payout-rate formulas ignore certain practical and particular aspects of giving to and from DAFs, such as the time between the date of contribution and the availability of the funds for grantmaking. More on this below.
Read the full article about the DAF payout rate by Andrew Hastings at PhilanTopic.