Charitable donations declined in 2022 after hitting record levels in 2021 and 2020. With only a few weeks to go before year-end, where will 2023 wind up when it comes to philanthropy? And how is 2024 shaping up on the giving front?
Total giving in the United States declined 3.4% in 2022, to $499.33 billion, as a result of the downturn in both stocks and bonds, according to Giving USA’s annual report on philanthropy. Individual donors gave $319.04 billion of that total, representing 64% of all charitable giving. The messy markets made this only the fourth time in four decades that donations did not increase year over year.
That said, charitable donations have turned around along with the stock market so far in 2023. Schwab Charitable, for example, reported that its donors increased their giving by 8%, or nearly $350 million, to more than $5 billion in its fiscal year 2023, which ended in June. Donors surpassed one million individual grants to charities for the first time in the organization’s history, supporting more than 120,000 charities throughout the year.
Along with the comeback in stocks, donor-advised funds helped elevate those results as well. While charitable giving typically is correlated with markets and the overall economic environment, donor-advised funds are resilient and provide a consistent source of funding for charities during challenging economic times, as contributions to DAFs may have been previously made and those resources have already been earmarked for charity.
“The great thing about using a donor-advised fund is that the money is set aside ahead of time,” said Rachel Schnoll, CEO of the $3 billion Jewish Communal Fund. “Fundholders have funds available to continue to send money to the organizations they care about.”
If the long-anticipated recession hits in 2024, Schnoll does not expect a dramatic drop in giving — or the need for it.
“Charitable organizations need more assistance than ever because more people are relying on their services,” she said.
Charitable giving isn’t simply a nice topic for advisors to opine about anymore. It’s now a required service offering for any wealth management practice.
“Clients want that strategic planning process as part of the conversation of overall wealth management; in fact, they are demanding it,” said Sam Kang, president of Schwab Charitable.
Advisors can help donors by identifying which assets to give, Kang said, including non-cash assets such as publicly traded stock or private business interests. Donating appreciated non-cash assets directly to charity, including to a donor-advised fund, can increase the amount available for charities by as much as 20% by potentially eliminating a donor’s capital gains tax liability on the assets.
More than half of all contributions to Schwab Charitable in fiscal year 2023 were non-cash assets, Kang said.
Jonathan Swanburg, president of TSA Wealth Management, uses Schwab donor-advised funds for clients, calling them “terrific tools” for investors who are looking to donate large sums for an immediate tax benefit but aren’t sure which charities or programs they want to support.
“Donor-advised funds are easy to set up and make it very easy to process donations once the donor decides where he or she wants the money to go,” said Swanburg, adding that “clients often ask if they can make a qualified charitable distribution to a donor-advised fund, but the answer there is no.”
Gideon Bernstein, chief investment officer at Leisure Capital Management, says investors should be working with an advisor for charitable giving because most of them “don’t know what they don’t know.”
“Advisors are actually a value-add because they can help investors to understand the best way to get charitable tax deductions, and understand concepts such as ‘bunching,’ which is a way to strategically make your giving more impactful in years when you have higher income,” said Bernstein.
Not to mention that aside from the tax benefits of charitable giving, the donations make the client feel pretty good about themselves too.
“Everybody that I had talked to that was involved in charitable giving had a more amazing outlook on life. They found out that giving was actually the secret to happiness,” Bernstein said.
There are, of course, a lot of DAFs to choose from.
“Finding a DAF that echoes the values of the client sets that advisor apart and shows they understand what makes their client tick,” said Schnoll.
Schnoll says she regularly works with financial professionals, including attorneys, accountants, and financial advisors, who are drawn to JCF because of their tax-solving abilities and exceptional service. And because the JCF is a Jewish donor-advised fund, that appeals to certain members of their client base as well.
“We offer an advisor network and frequently pull together our advisors for informal lunches or larger events. At these events we discuss philanthropy and offer networking opportunities between the different financial professionals,” Schnoll said, adding that because the JCF is not affiliated with a financial services firm, it offers an open-architecture platform of high-quality, low-cost investments.
Advisors shopping for the right DAF may want to consider whether they will retain the ability to manage investments on behalf of their clients. They may also want to investigate how quickly grants are processed and whether there are hidden fees for wire transactions or document review.
Source: Giving USA Foundation
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