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Donor-Advised Fund Forecast

Donor-advised funds have garnered increasing popularity as charitable vehicles for their flexibility, administrative ease, and tax advantages.

 We’re all familiar with the saying, “When it rains, it pours.” In 2020, this was perhaps brought to bear more so than any other year in recent history. The ongoing pandemic, economic downturn, social and racial unrest and fraught elections have caused deep pain and hardship across the country and the globe. But this traumatic year has also triggered something more hopeful – unprecedented giving from donor-advised funds. 

Donor-advised funds have garnered increasing popularity as charitable vehicles for their flexibility, administrative ease, and tax advantages. When the passage of the Tax Cuts and Jobs Act increased the standard deduction for 2018-2025, donor-advised funds presented a new planning opportunity for charitable taxpayers who can bunch deductions to itemize every few years. Donors can make a gift to a donor-advised fund in one tax year that is equal to their projected giving over the next several years. The amount donated should be large enough to allow total deductions to exceed the standard deduction for the tax year. Donors can then use the fund in subsequent years to support the charities of their choice and replenish the fund in a year when they are able to itemize deductions. 

 Grantmaking from donor-advised funds to qualified charities has nearly doubled in the past five years, according to the National Philanthropic Trust. The onset of the pandemic further catalyzed record giving from commercial and charitable donor-advised funds across the country. According to a survey by the Community Foundation Public Awareness Initiative (CFPAI), donor-advised fund grantmaking at 32 foundations was up more than 80 percent in March-May of this year compared with the same period one year ago. This increased support translates to hundreds of millions of dollars in grant funding to communities. Most frequently, their support went towards general operating support for local nonprofits and the communities they serve. 

We have observed the same to be true right here in Central New York. As of this September, grants or transfers from donor-advised funds to support the Community Foundation’s grantmaking and strategic initiatives increased by 67% since 2019 and more than doubled since 2018. The average size of each grant has doubled from 2018 to 2020, from $3,900 to $7,800. 

 OTHER ADVANTAGES OF DONOR-ADVISED FUNDS (DAFS) 

  • Your client can use assets other than cash to fund their charitable giving. We can accept cash, publicly traded securities, closely-held shares, LLP or LLC interests, real estate, commodities (e.g., silver bars), and other assets to fund a DAF. Some of these asset types take more planning and effort and can’t be implemented quickly, but cash and publicly traded securities can usually be used to capitalize a DAF in one or two days.
  • A DAF can protect the donor’s anonymity. Unlike a private foundation where the individuals involved, gifts received and the grants made each year must be publicly disclosed, a DAF operates under our public charity umbrella with many funds aggregated. Individual grants can be done on an anonymous basis or the entire DAF could be anonymous. It is completely up to the donor. 
  • Rebalancing, resetting cost basis, and required minimum distributions (RMDs) can all be done in connection with a DAF. By making gifts to a DAF of assets that create taxable events you can potentially mitigate the tax impact on your client. 

 EXAMPLES:

  • When rebalancing a client’s stock allocation, some portion of this rebalancing may be achieved by donating appreciated securities and then using cash to buy the assets that need to be increased within the allocation.
  • A highly appreciated stock can be donated to a DAF, thus avoiding capital gains tax. Then, you can repurchase that very same stock and thereby reset the cost basis for that holding.
  • Retirement plan RMDs can be taken by the client and then donated to their DAF, which generates a possible charitable deduction to help offset the additional taxable income.

 While the future is uncertain, it is clear that charitably inclined individuals far and wide are willing to step up when the going gets tough. The donor-advised fund can be a great tool for your charitable clients who are looking to step up their giving in 2020 and beyond. This offering is a core service of the Community Foundation, enabling us to engage with community-minded local residents and generate greater giving for our region.

FUNDHOLDER CHECKLIST FOR YEAR-END GIVING 

The last quarter of the calendar year is when many people make charitable gifts to take advantage of tax deductions and because countless nonprofits ask them for donations this time of year! If you or your clients are planning to replenish a donor-advised fund, or contribute to other charities from your fund before December 31, here are some helpful reminders: 

01. EARLIER IS BETTER 

The volume of transactions increases significantly during December. 

02. NOTIFY US WHEN TRANSFERRING STOCK 

It is important to contact us when donating securities to a fund at the Community Foundation so that we can credit your gift appropriately. Also, ask your broker to disclose your name when transferring the shares to avoid delays in your acknowledgment letter. 

03. USE OUR ONLINE RESOURCES 

You can access information about your fund through MyGiving, our online tool for fundholders. Your MyGiving account offers a menu of options to make grant recommendations, obtain fund summary information or past grants, and much more. You can also find grant suggestion forms and stock transfer forms at cnycf.org/DonorDocs. Our website offers instant access to a wealth of information and tools that will help you fulfill your year-end charitable giving objectives. 

Any questions? Visit cnycf.org or contact Monica Merante at (315) 883-5541. 

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