The tax deal reached in December by congressional leaders and the Obama administration is fueling a boost in donations into donor-advised funds.
The tax deal reached in December by congressional leaders and the Obama administration is fueling a boost in donations into donor-advised funds.
The Vanguard Charitable Endowment Program, the nation's second-largest, collected about $129 million during the first quarter, a 60% in- crease over the same period a year earlier. Donations out of the $4.8 billion fund totaled $87 million, a 31.2% increase from $66 million.
“Giving is back,” said Benjamin Pierce, president of Vanguard Charitable. “Taxes are critical in giving.”
Meanwhile, Fidelity Investments' $5.4 billion Charitable Gift Fund collected $269 million in new donations during the first three months of the year, with the number of donations rising 25% from the first quarter of 2010. Donations paid out of the fund, which ranks as the nation's largest donor-advised-fund program, climbed 8% to $293 million.
The increases marked a record first quarter, in terms of the number of contributions and grants, for the 20-year-old fund.
COMPROMISE, CHANGE
The uptick in giving is an effect of the compromise reached between Congress and the White House that temporarily extended Bush-era tax cuts. That agreement also set generous parameters around gift and estate taxes, exempting $5 million a person from taxation.
Experts are recommending that wealthy individuals and families make the most of the existing philanthropy-friendly tax provisions before they disappear.
“Advisers are looking at whether there is something to do around planning during 2011 and 2012 to prepare for higher tax rates and the limits on itemized deductions that are being proposed,” said Sarah Libbey, president of Fidelity Charitable Gift Fund.
In fact, President Barack Obama last week called for limiting itemized deductions for the wealthiest 2% of Americans as part of his plan to trim the budget deficit by $4 trillion over 12 years.
The president's proposed budget for 2012 would increase the top tax rate to 39.6% and limit the value of the charitable deduction for wealthy taxpayers to 28% of the dollars donated.
Nevertheless, the two-year window of certainty around taxes appears to be giving donors the confidence to increase their charitable giving, said Kimberly Wright-Violich, president of Schwab Charitable, which has $3.1 billion in total assets.
“People who were procrastinating their decisions now can do tax planning,” she said.
Ms. Wright-Violich declined to reveal the first-quarter figures for Schwab's donor-advised fund. She did say, however, that contributions into, and donations out of, the fund are on the rise.
Sentiment is mixed on whether the changes to the estate tax exemption are directly responsible for the increase in giving.
Estate tax lawyer Martin Shenkman, for example, said the estate tax provision actually discourages philanthropy because the vast majority of donors' estates fall below the threshold — thereby eliminating the incentive to make charitable donations. Ms. Libbey countered that if people are inclined toward giving, the $5 million exemption will cause them to think about how they can be more generous.
IRA DONATIONS
Another tax code adjustment that is encouraging giving is the provision that allows people who are at least 701/2 to give up to $100,000 to charities tax-free from their individual retirement accounts.
Robert Wahlers, senior director of development and gift planning at Meridian Health Affiliated Foundations, said that this incentive is helping his hospital group attract dollars this year.
The foundation also increasingly sees donors use charitable-lead trusts, which provide income to a charity for a certain number of years and then transfers the trust back to the donor or family members. The current low interest rates help make this an attractive vehicle for giving, Mr. Wahlers said.
In addition to more certainty about taxes for the next two years, of course, the improved markets also have helped loosen up wallets, Mr. Pierce said.
Both Fidelity and Vanguard have seen a large increase in appreciated securities coming in to fund the gifts.
“Because of the improved markets, people have more appreciated assets to give,” Mr. Pierce said.
The decision to give, of course, isn't based only on whether people are feeling economically healthy or whether they're looking to keep assets away from Uncle Sam.
“First and foremost is whether giving is at the heart of their values and intentions,” Ms. Libbey said. “Tax policy gives them a reason to refine their giving strategy from year to year.”
The vast majority of charitable organizations oppose Mr. Obama's proposal to cap the charitable deduction at 28%, said Diana Aviv, president of Independent Sector, which lobbies for the charitable community.
“Doing anything to disincentivize giving is not a good thing,” she said. “Especially when needs are high, the government isn't contributing and the economy hasn't recovered entirely.”
E-mail Liz Skinner at lskinner@investmentnews.com.
