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.