Paul L. Caron

Wednesday, December 28, 2016

Popularity Of Donor-Advised Funds Soars With Bull Market And Looming Trump Tax Changes

DAFWall Street Journal Tax Report: Charity Accounts Become the Hot Holiday Must-Have: Rising Markets and Fears About Possible Tax Overhaul Fuel the Rush, by Laura Saunders:

American taxpayers are pouring money into charitable-giving accounts before year-end, prompted by rising markets and fears that a tax overhaul could trim the popular strategy of donation deductions.

At Schwab Charitable, the giving-fund associated with Charles Schwab Corp., donors put more than $693 million into new and existing giving accounts between Thanksgiving and Dec. 18, a 20% increase over the same period in 2015. Spokespeople for Vanguard Charitable, Fidelity Charitable, and National Philanthropic Trust said donations to their giving funds have recently jumped by double- or triple-digit percentages compared with last year, although they declined to provide dollar amounts.

The biggest drivers lately are proposals by President-elect Donald Trump and Republicans in Congress to limit the value of charitable deductions, either by lowering tax rates or cutting the deductible amount. In addition, markets rose to highs recently, and there are tax benefits for donating appreciated assets rather than cash.


There’s still time for donors to open or add to giving funds for 2016.

This year’s rush further boosts the impressive growth of individual giving accounts, which have become an alternative to private foundations for the wealthy and a favored vehicle for the affluent

During the five years ended in 2015, annual contributions to such funds more than doubled, to $22.4 billion from $10.4 billion. Total assets more than doubled as well, to $78.6 billion from $38.2 billion, according to the latest data compiled by the National Philanthropic Trust. ...

These funds’ popularity stems from their flexibility and tax advantages, which allow donors to contribute assets and deduct the gift right away while designating charitable recipients much later. Meanwhile, the account assets can be invested and grow tax-free. ... Fidelity and Schwab have minimum initial contributions of $5,000 and allow minimum grants of $50, while at Vanguard the minimums are $25,000 and $500, respectively. 

Wall Street Journal op-ed: Giving Back Isn’t Only for Billionaires: Many Americans Set Up Donor-Advised Funds to Make a Difference Without the Bureaucratic Hassles, by James Piereson (President, William E. Simon Foundation) & Naomi Schaffer Riley (Senior Fellow, Independent Women’s Forum):

The number of [Donor-Advised Funds] in the U.S. grew to 238,293 in 2014, up from 184,364 in 2010, according to a November report from the Manhattan Institute [The Promise—And a Problem—of Donor-Advised Funds for Charity]. During the same period, charitable assets in DAFs grew to $70.7 billion from $33.6 billion. ...

The Chronicle of Philanthropy announced in October that Fidelity Charitable, the biggest sponsor of donor-advised funds, had topped its list of the 400 largest charities. Not everyone was thrilled. Boston College law professor Ray Madoff wrote in the same publication that “DAFs undermine fundamental principles of what it means to give.” She criticized the funds because they do not require a minimum amount to be paid out each year and they have less rigorous reporting requirements than private foundations.

But these funds aren’t becoming so popular because their donors are greedily trying to keep their money and avoid taxes. It’s more simple: Donor-advised funds have made giving much easier, particularly for those with modest resources. ...

As American philanthropy has grown, so has the bureaucracy that sustains it. Foundation budgets have ballooned to $55 billion in 2013, up from $30 billion in 2003, according to the Foundation Center. Also growing are the regulations that govern these foundations and the staffs that support them. The Sarbanes-Oxley Act of 2002 requires foundations to complete paperwork regarding whistleblower protection and conflicts of interest. Trustees are often urged by auditors and the IRS to set up compensation and audit committees to set staff salaries and monitor the finances of their organizations. Many wealthy Americans now feel it is too burdensome and expensive to start a charity.

Donor-advised funds allow donors of all levels—the minimum amount required to start a fund with Fidelity is $5,000—to put away money for charitable causes without having to worry about exactly how much is being granted each year. These contributors disburse money at a higher rate than private foundations—21.9% of assets, compared with 5.8% for private foundations in 2013-14, according to the Manhattan Institute report.

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