“The wealth level of the family absolutely makes a difference for the vehicle used,” Bircher says. She says that private foundations are more attractive to high-net-worth donors and those who want a long-term giving vehicle.
Besides donor-advised funds and private foundations, there are also a variety of trust arrangements donors can use, especially if they are melding their philanthropy with their estate planning. Take charitable remainder unitrusts, which are designed to defer recognition of capital gain income for tax purposes. A donor can make a donation to the nontaxable unitrust. He or she then receives a distribution of a fixed percentage of the trust’s value each year for a period of years or for life. The remainder of the assets are donated to charity when the donor dies.
“These trusts can create valuable opportunities for those who want to increase their cash flow from appreciated property without paying significant income tax on the sale,” says Bernie Kent, chairman and senior advisor at Schechter Investment Advisors in Birmingham, Mich. Most of his firm’s clients have between $3 million and $35 million in assets, so philanthropy is a major part of their financial planning, Kent says.
“Tax planning comes into play for many of our clients who have highly appreciated assets or who have a large amount of stock from one company,” he notes. “These types of assets are good ones to give to charity,” he adds, because by giving them the donor avoids paying capital gains taxes and that leaves more money to donate.
People will also pick charity vehicles according to how aggressive they are in their giving. Says Melanie Jones, senior vice president with Evoke Advisors in Los Angeles: “For instance, if a family wants to give away 50% of their wealth” it might require multiple vehicles.
The age of the stakeholders also plays into the decisions about how to give. “If the donor is more than 59 and a half, he can make withdrawals from an IRA without penalty, and if he is more than 72 years old, he is required to make withdrawals,” says Jones. Calculations of these amounts can be used in charitable planning.
Better Together
The nature of philanthropy has also required new ways of organizing it.
Consider the charitable startup called Daffy. The company, launched in 2021, has created an unusual program meant to bring families together in their giving goals. The firm (whose name stands for “Donor Advised Fund For You”) has recently launched a technology that draws a group of up to 24 people into the giving process. It’s called “Daffy for Families,” and it allows the donors in its donor-advised fund to include up to 24 of their family members, or close friends, to be notified of the donor’s fund activities, according to Adam Nash, the firm’s CEO and co-founder.
“The goal is to prompt conversations among family members about philanthropy and about the family’s legacy,” Nash says. Those invited to share in the group are advised when the fund makes a donation and are able to create their own sub-accounts with profiles and make donation suggestions to the organizers. Only the organizers, however, can actually make donations from the fund and receive the tax benefits.
“We are hoping Daffy for Families will create situations where family members will have more conversations about their philanthropic goals and the causes that are important to them,” Nash says. “It has been shown that people who set goals give more.”
Turmoil Or No
Fidelity Charitable says that 59% of its clients are considering giving more to charity this year, even though giving is often one of the first things cut from budgets during times of economic woe.
Jodi Rosen, the director of business and product development at Vanguard Charitable, a donor-advised fund, says that when it comes to things like estate planning, giving still plays a role no matter what the markets are doing. “This comes up even as donors are considering the volatile markets,” Rosen says. “They are still thinking about leaving a legacy.”