Investors have flocked to donor-advised funds in record numbers since last year, encouraged by the changes to the tax code, a robust stock market, a deluge of natural disasters and political noise. But the stepped-up usage of donor-advised funds (charitable accounts sponsored by public charities) is more than a fad or a gut reaction to the latest news headlines.

Donor-advised funds, first established in the 1930s, enable individuals to set aside cash and non-cash assets and invest them, for tax-free growth, until they grant them to specific charities. Non-cash assets contributed to the funds include publicly traded securities as well as such complex assets as privately held securities, private business interests, real estate, art and, more recently, cryptocurrency.

According to the latest annual industry report from the National Philanthropic Trust, a sponsor of these funds, donors contributed $23 billion to approximately 285,000 individual donor-advised fund accounts across the U.S. in 2016 and used them to recommend nearly $16 billion in grants to qualified charities. NPT and other leading donor-advised fund providers reported record increases in new account openings, contributions and grants in 2017.

Ken Nopar, the senior philanthropic advisor for another fund sponsor, the American Endowment Foundation, says it saw a 70% year-over-year surge in the number of new accounts opened in 2017. He said the new tax law wasn’t the major impetus for this surge, however, “it certainly was for people who were sitting on the fence about doing it,” he says. “The mentality of some probably was, ‘If not now, when?’”

A bigger push, he says, has come from advisors who view donor-advised funds as a good fit for their philanthropic clients who have appreciated assets. There’s an increasing awareness that philanthropy is “not just for the Zuckerbergs of the world,” Nopar says. “Donor-advised funds are for people of all levels of wealth.”

The American Endowment Foundation allows advisors to manage assets of any amount in their clients’ donor-advised fund accounts. Many other sponsors permit advisor involvement only at asset levels of $250,000 or higher.

Investors are learning through their advisors and friends that donor-advised funds offer a simple, efficient and effective way to help themselves and the charities they wish to support, says Nopar. There’s no setup fee, and donors get the tax deduction immediately. The funds also take pressure off advisors because clients can access their accounts online anytime they wish to make grants.

Advisors are also feeling more compelled to address philanthropy. From what he’s hearing from them, Nopar says, “There’s sort of this concern now that if they don’t have this conversation with their clients and prospective clients, they know some other advisor will.”

He expects to see a lot of new donor-advised funds opened throughout this year. He also anticipates that many donors will beef up their contributions to their existing funds given the uncertainty about where the markets are headed.

If the markets don’t appreciate, contributions to donor-advised funds will level off, but granting will likely continue to rise, says Kim Laughton, president of Schwab Charitable. Grants through the charity’s donor-advised funds increased during the recession of 2008 and 2009, Laughton notes, because people used assets they’d previously set aside.

Schwab Charitable saw a 91% spike in its number of new donor-advised fund accounts opened during the second half of 2017 from the same period the year before. Interest has been rising for a number of years, Laughton says, noting, “Our mission is to try to get people to think about charitable giving alongside their financial and wealth management planning process.”

Trends To Watch

More than 70% of the total 2017 contributions to Schwab Charitable donor-advised funds were highly appreciated non-cash assets (including bitcoin). Schwab liquidates these assets for donors (something many charities don’t have the staff to do) or brings in a third party when more expertise is needed. In the future, Laughton expects to see increased contributions of complex assets, such as privately held securities, LLCs, partnerships, real estate, private equity and hedge fund interests.

There’s a growing trend to figure out “whether anything that’s appreciated can be used to help do good and support charity,” she says. “We take that opportunity seriously.” In general, many assets that have appreciated can make really great gifts, she says, “but not all of them make tax-smart donations.” Donors should consult with their advisors and tax providers to see if certain assets are the right gift for them to give under their specific tax situation, she says.

Complex assets are also a big focus for Fidelity Charitable, another leader in donor-advised funds that’s seeing a huge influx of new donors (30,000 in 2017). Many of its donors are repeat givers of complex assets because that’s how they’re creating their wealth and funding their philanthropy, says Karla D’Alleva Valas, managing director of the advanced planning group at Fidelity Charitable.

Valas expects this trend to continue, in part because of the merger and acquisition environment in public and private markets, which “is strong and only getting stronger,” she says. The trend forces stockholders to take capital gains, which they might want to off-load. Donors are also sharing their experiences of gifting non-cash assets when they speak with their friends, co-investors, and advisors—with people on golf courses and in their charitable giving communities, Valas says.

“They’re absolutely becoming ambassadors for the strategy as well as almost like evangelists of this strategy,” she says, “because it is so brilliant for not only tax savings, but more importantly, for their philanthropic mission for today, for tomorrow and for their legacy planning.”

The investment portion or “growth piece” of donor-advised funds can be powerful, says Valas. Since inception, in 1991, Fidelity Charitable’s investment growth has generated $6 billion for grants on top of what donors contributed to their giving accounts. The account statements simplify record-keeping for donors, Valas adds, so they won’t have to “dump the proverbial shoebox on the office desk of the CPA.”

Eileen Heisman, president and CEO of National Philanthropic Trust, expects to see continued industry trends this year of converting complex assets into charitable gifts and “rage giving” (granting to organizations that oppose or work against government policies that donors disagree with).

Another strategy that she thinks could become a trend, because of the new tax law, is “bunching,” which refers to consolidating several years of contributions in a single tax year to maximize deductions. “It’s very likely but too soon to be sure,” Heisman says.

Jim Holtzman, a wealth advisor and shareholder with Pittsburgh-based RIA firm Legend Financial Advisors, also expects to see more bunching and more gifting of non-cash assets.

Let’s assume, he says, that a taxpayer has securities worth $50,000 with a cost basis of $30,000. By gifting them directly to a charity (if it has the ability to accept them) or to a donor-advised fund, the taxpayer gets rid of the $20,000 capital gain. Assuming the giver faces a 15% tax rate, that’s a tax savings off the top of $3,000, he says. The taxpayer can also write off the $50,000 fair market value of the securities.

“You kind of get the best of both worlds rather than just donating the cash to the donor-advised fund,” Holtzman says.

Now let’s assume a married couple filing jointly has $20,000 in itemized deductions, including $5,000 in charitable giving, he says. They won’t get a tax advantage for the gift because their standard deduction under the new tax law is $24,000. But if they have the means to bunch five years of $5,000 charitable gifts into a donor-advised fund one year, they can itemize their total deductions ($40,000) and get a tax benefit of $16,000 that year, he says.

Holtzman suggests that advisors interested in donor-advised funds ask custodians about the cost of funds; whether their platforms utilize open architecture to accept any securities; and what process, forms and logistics they use to disperse funds to charities. Several of his clients have used donor-advised funds sponsored by Vanguard.

Something For Everyone

Marguerite Griffin, director of philanthropic advisory services at Northern Trust Wealth Management, says the company has seen enormous interest from clients in its donor-advised fund, the Northern Trust Charitable Giving Program, particularly last year, amid talk of the tax changes. The fund is run in partnership with the Chicago Community Foundation and had 484 active accounts with $401 million of assets as of December 31, 2017.

Griffin says the interest has been spurred by the fact that the fund is easy to join and has a lower point of entry than a charitable foundation, which would take much more money to endow. Still, says Griffin, “What I’m finding right now is not a question of either/or. … It’s that they’re doing both.”

Donor-advised funds give families the opportunity to try their hand at philanthropy, make anonymous gifts and provide training for younger family members who may not be ready yet to assume a leadership role with a family foundation, Griffin says. The funds allow the younger generation to learn about charitable giving, develop their interests and research skills, and know what it means to have to make decisions, she says.

Some families decide to endow a foundation after trying a donor-advised fund. Griffin has seen others disband their foundations and distribute the assets among separate donor-advised funds for different branches of the family. While foundations can last in perpetuity, she notes, donor-advised firms are often terminated after two generations.

So where are donors granting assets? Participants in the Northern Trust Charitable Giving Program have made grants to such organizations as Doctors Without Borders, Berea College, the Friendship Circle Miami, the Connecticut Audubon Society and Catholic Charities.

The American Endowment Foundation saw an uptick in donor support for liberal causes in 2017, including the Nature Conservancy and Planned Parenthood, says Nopar. “We have donors that support the NRA and also the ACLU,” he says, “but probably not many that support both.” It was also the first year AEF donors granted a greater percentage of charitable dollars to educational organizations (25%) than religious organizations (20%).

Valas, of Fidelity Charitable, urges advisors to develop confidence and competence in charitable giving and to get the conversation rolling with clients, even if they feel uncomfortable or if their clients don’t bring it up. “We have data that shows clients are hungry for this conversation,” she says. Fidelity Charitable and other sponsors offer resources and training for advisors.

Advisors should also look beyond their clients’ brokerage assets and consider how they’re creating their wealth, says Valas. Whether it’s through a medical practice, a chain of fast-food restaurants or a mom-and-pop operation, she says, it could be their biggest source of philanthropy.

“If you don’t plant those seeds well in advance of the actual liquidity event or exit strategy, especially with aging baby boomers,” she says, “you’re going to have a real struggle to get your client on board with the beauty of not only the tax savings but the philanthropic impact down the road, in the heat of the moment.”