While some charitable vehicles, and donations in general, are struggling to keep up with past record-setting years, donor-advised funds are pulling ahead, according to those who work with them.
Elaine Kenig, chief communications officer at Vanguard Charitable, says philanthropic giving in general has declined or remained steady, in part because inflation hit donors hard, but she says the exception is donor-advised funds. At Vanguard, grants to charitable organizations were up in 2022 by 5% over 2021 and for the first six months of this year grants increased by 24%.
With a donor-advised fund, an immediate tax deduction is realized, and the funds then continue to grow tax-free until the person who set up the fund decides at some point in the future what organizations to give money to.
“Donors are able to respond to a need because the dollars have already been allocated for charity,” Kenig says. For instance, donors in these funds were able to respond to community organizations that needed assistance during the pandemic and are still giving to organizations involved in the support of Ukraine.
Donor-advised funds themselves are expanding philanthropists’ possibilities. Vanguard Charitable recently introduced 16 new investments to expand its fund lineup. “The expansion provides donors with new actively managed funds and more options within U.S. equity markets, enabling greater portfolio customization,” Vanguard Charitable says. The organization now offers a total of 36 investments to bolster its donors’ wide-ranging philanthropic goals.
“Through conversation with our donors, we identified an appetite for an even greater number of high-value, low-cost investment options that allow donors to customize their investment blend and continue to grow their charitable impact,” says Rebecca Moffett, president of Vanguard Charitable.
Karen Kardos, the global head of philanthropic advisory at Citi Private Bank, notes that donor-advised funds are growing in part because many donors do not want the administrative duties and the public reporting requirements that come with creating a private foundation, such as the requirement that they must give at least 5% of a foundation’s net worth to charity each year and document the giving.
The nature of grants is also changing as women and younger generations come into their own in the philanthropic realm, she says. Religious organizations, human services and education have remained the top three categories of giving for years, the experts say. However, “women and younger generations are becoming the decision-makers as the great wealth transfer takes place,” Kardos says. “In fact, members of younger generations already are influencing giving as interest shifts to social issues in the wake of such things as George Floyd’s death. Younger generations think of philanthropy more broadly than older generations.”
Other donor-advised funds have also seen increases in spite of the volatile market that is costing some philanthropists money. Brandon O’Neill, vice president of charitable planning at Fidelity Charitable, said the organization’s donor-advised fund has seen record amounts of donors come in because the structure provides them with a hedge against inflationary pressure and increases the efficiency of giving.
“During the pandemic, donors saw [these funds] as a resource for giving to community organizations,” O’Neill says. “Human service causes are becoming the new fastest growing giving sector.”
Schwab Charitable reported strong giving activity for fiscal 2023, ended June 30, “despite the recent economic and market volatility, and it demonstrates the resiliency of donor-advised funds,” Schwab says.
Donor-advised funds are also popular because they can be used in estate planning, according to the Foster Group, a financial advisory firm with offices in West Des Moines, Iowa, and Omaha, Neb.
“By incorporating [donor-advised funds] into estate planning, clients can benefit from several advantages, including greater tax benefits, flexibility, and control over their charitable giving. [The funds] offer a simple and convenient way for clients to manage their charitable giving, with the added benefit of being able to donate appreciated assets, such as stocks or real estate, without incurring capital gains taxes,” the Foster Group says.