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).