Charitable Giving Remains Robust Despite Investor Fears

Don’t skip those philanthropic conversations; they’re a win for your clients, their charities’ beneficiaries and you.

By Jerilyn Klein

Record inflation, market volatility, rising interest rates and the threat of a recession aren’t dampening donors’ enthusiasm for charitable giving this year as much as one might think.

“We have seen a slight delay in terms of giving, but we are really seeing that pick up again,” says Sam Kang, president of Schwab Charitable, one of the nation’s leading providers of donor-advised funds and other philanthropic services. “The market volatility is really more of a short-term thing and, if anything, it just pushes or delays the granting more toward the end of the year.”

The nonprofit hasn’t yet tabulated figures for fiscal 2023, which began July 1, but fiscal 2022 was a banner year for charitable giving despite economic and market pressures. During that time, Schwab Charitable donors increased their grants to charity by 27%, to more than $4.7 billion, and supported 117,000 organizations through 993,000 grants.

“What we do hear from our donors is all intentions are to give, and give more,” says Kang.

Fidelity Charitable, another leader in the donor-advised space, has also seen record giving. Its donors recommended a record $4.8 billion in grants through the first half of 2022 — an 11% increase from the previous year. Among its donors it surveyed in July and August, 59% said they’re considering giving more to charity this year because they’re worried that others will have a tough time weathering an economic downturn.

Sam Kang
Sam Kang

Kang is also encouraged by the nation’s broader philanthropy trends. “Giving continues to increase year-over-year,” he says, noting that U.S. charitable giving reached a record $485 billion in 2021. That’s a 4% increase over 2020 although, adjusted for inflation, it’s essentially flat, notes the source of the aggregated figure, “Giving USA 2022,” a publication from the Giving USA Foundation. The report is researched and written by the Indiana University Lilly Family School of Philanthropy. ‘It starts from the heart’

 No doubt, charitable giving could see some pullback if we head into a recession. During the Great Recession, total giving fell 7.0% in 2008 and another 6.2% in 2009, according to the Russell Sage Foundation and the Stanford Center on Poverty and Inequality.

But Kang remains optimistic that wealthier individuals will remain charitable, “especially in hard times,” he says. “It starts from the heart and the needs are still great, so people are very mindful of that.”

“If you think about even the last couple years when there have been crises — such as Afghanistan, Ukraine, Covid-related, natural disasters — we always see spikes in giving from our donor base, no matter what the market is.”

Of course, it’s easier for investors to grant to charities when they’ve already allocated these assets to a donor-advised fund or family foundation. But they’ve also significantly boosted their contributions to donor-advised funds despite the challenging times.

According to the 2022 edition of National Philanthropic Trust’s “Donor-Advised Fund Report,” total contributions to DAFs jumped a record 46.6% between 2020 and 2021 (from $49.6 billion to $72.7 billion) and the number of funds increased 27.6%, to 1,285,801. The report examines 995 charitable organizations that sponsor donor-advised funds. It notes that all contributions to DAFs are irrevocable and destined for qualified charities.

A perfect way to deepen client relationships

According to the latest Schwab RIA benchmarking study, 85% of advisors now offer charitable planning as a value-added service, notes Kang. “That’s even higher than tax planning, estate planning,” he says. “We do know that more than 80% of all households that have high net worth or ultra-high-net-worth are already giving in some way.”

Talking to clients about their charitable-giving plans can deepen your relationships with your them, he says, and there are many opportunities to integrate it into the conversation — particularly in the current environment.

For example, “Many clients still have very long, highly-appreciated assets with a low cost-basis, Kang says. “Donating appreciated non-case asses that have been held for more than one year can increase the amount available for charities and save on taxes.”

If the donor/client contributes these assets directly to a donor-advised fund or another charity, this eliminates the capital gains that is otherwise incurred if the donor first sells the assets and then donates the cash proceeds, he explains. Since the long-term capital gains tax is typically 15% or 20%, depending on the donor’s income level, directly donating the non-cash assets can increase the amount available to charity by up to 20%. Donors who itemize their deductions will also be eligible for a tax deduction for this charitable contribution, he says

Meanwhile, clients may be able to tie their market losses into charitable giving, says Kang. If they identify certain securities in their portfolio that are currently valued at less than cost basis and sell those securities at a loss, the capital losses can be used to offset capital gains and up to $3,000 of ordinary income. Donors can then also claim a charitable deduction if they donate cash from the sale proceeds.

Although many donors already have very close relationships with charities and know where they want to give, “there are also donors that are really just beginning that journey,” says Kang. This includes some retirees who now have more time to think about their philanthropic interests and goals.

So how do you get the conversations rolling?

For new clients, “It can be as simple as, ‘What are you passionate about? What would you like to do in your free time?’” says Kang. This is also a great time of year, as you rebalance clients’ accounts and encourage them to think about the tax consequences, to initiate charitable-giving conversations, he says.

Asking clients about their charitable intentions is of course a natural fit during legacy conversations, as clients discuss what’s important to them and the values they want to pass on to the next generation, says Kang.

He also suggests initiating discussions about charitable planning when speaking with clients about retirement planning and when they’re going through major life events, such as selling real estate or a privately held business. Clients may not realize that they can start funding their philanthropy now, so they can continue to give in retirement, or that donating a portion of the assets from a major tax event can help minimize capital-gains taxes.

Be sure to also listen for cues from clients that are an opening to discuss charitable planning, he says, such as “I want to make sure that I can give back to my community,” “I don’t want to pay so much in taxes” or “Now that I’m going into retirement, I want to downsize.”

Conversation starters from Schwab Charitable can be found here.

Welcome the next generations

The intergenerational wealth transfer [already underway, it’s the largest wealth transfer in history] also presents a perfect opportunity to step up charitable-giving conversations with your clients and their families, says Kang.

Cerulli Associates projects $84 trillion in wealth transfers through 2045, he notes. Of this amount, $72.6 trillion in assets will be transferred to heirs and $11.9 trillion will be donated to charities. Baby boomers will transfer more than $53 trillion; silent-generation (and older) households will transfer $15.8 trillion, mostly over the next decade.

“This is a great chance for especially the older generation to really bring the younger generation into those [giving] conversations,” says Kang. By helping facilitate these conversations, you can get to know and try to build a rapport with your clients’ adult children, increasing your chances that they will want to work with you too.

It’s also a great time of year, as we move into the holidays and are thankful for what we have, for families to pause and discuss where they want to give longer term, he says.

Although most younger investors don’t yet have as much assets to give as their parents or grandparents, don’t underestimate their charitable intentions. “The baby boomers are still giving the most in terms of overall dollar amount,” says Kang, but millennials are giving at a higher rate than Generation X. Both millennials and Gen X are recommending slightly fewer grands per year than baby boomers and the Greatest Generation.

Help clients make the biggest impact

Also bear in mind that advisors can help clients make the biggest impact by educating them about why it’s important to give charities some autonomy with deploying their granting dollars.

“What we hear many times from charities is there is that initial need, but there’s also sustained giving that’s necessary,” says Kang. “As examples, we saw that in Afghanistan, we’re seeing in Ukraine, there is a huge influx of dollars that comes through upfront, but we also need to be very mindful of the ongoing need and the secondary impact, specifically with natural disasters and time of war.”

Kang points to the four stages of disaster giving: mitigation, preparedness, response and recovery. Although most people focus their granting on the response stage, usually within 90 days after a disaster, the recovery stage could take months or even years. Granting dollars allocated to the mitigation and preparedness stages can also help lessen the impact of some disasters.

Providing charities with unrestricted grants, rather than allocating grants to specific campaigns or specific purposes, also lets charities use granting dollars in the best possible way, says Kang.

“We’ve seen some cases where some charities have had to reject the money because [donors’] restrictions were so specific or campaigns [they selected] had already met that goal — even though there were needs in other areas,” he says. An unrestricted grant “really has a bigger impact because those dollars can be activated quickly.”

Jerilyn Klein is editorial director of Rethinking65.

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