By Ken Nopar, Senior Philanthropic Advisor

I recently attended the Heckerling Institute of Estate Planning conference and was able to meet with many of the leading estate planning attorneys and wealth advisors in the country and hear about their conversations with clients about charitable giving, gift planning and donor advised funds (DAFs). 

Tax Cuts and Jobs ActMany advisors felt that one of the biggest benefits of the 2017 Tax Cuts and Jobs Act was that in 2018, clients and their tax, legal, and financial advisors discussed charitable giving more than ever before as clients wanted to understand the implications of the tax law changes.

Consequently, because these conversations took place earlier than usual and throughout the year, more accounts were opened and funded sooner, and the size of the accounts that were created and the additional donations to already-established accounts increased substantially.

Christopher Hoyt, Professor of Law at the University of Missouri (Kansas City) School of Law, shared in his Heckerling presentation what many others have said, that “this law was the best thing to happen to donor advised funds.”

Many conversations about “bunching” donations took place, but the advisors who helped their clients establish DAFs at AEF and bunch their donations did not just look at increasing donations to exceed the new higher standard deduction of $24,000. Even though clients may have initially read about and talked with their advisors about bunching and funding smaller DAFs, in the end they often created larger funds.

Bill Hair, an advisor with Bernstein Wealth Management, said that “Although bunching charitable gifts has become much more popular since the Tax Cuts and Jobs Act, we have been having conversations about bunching for many years.  Taxpayers with unusually high income years, or those who realize large capital gains, have long benefited from accelerating charitable gifts they had planned to make over time.  Many of our wealthy clients have taken advantage of DAFs to facilitate the bunching of their charitable gifts in years when they sell stock, real estate or business interests.”

Advisors believe that this trend will continue this year as these large donations will be the basis for clients’ grant making for the next 5, 10, or 50 years. Additionally, because one of the key benefits of DAFs to donors and the charities they support is that when there is market volatility (or if the donors’ income drops in the future), they will still be able to provide consistent support to their favorite organizations. Since they already funded their donor advised funds, they don’t have to reach into their wallets again or donate stock from their current investment portfolio to continue to show their charitable support.

A number of advisors at Heckerling felt that when clients see their tax returns this year, they will be surprised that the amount they have to pay will be larger or their refund will be smaller than expected. This will lead to additional conversations about bunching and whether opening DAF accounts would be appropriate.

Halsey Schreier, a Senior Wealth Strategist with CIBC Private Wealth Management (formerly Atlantic Trust), stated that “Many clients may not fully appreciate the impact of the 2017 Tax Act and the loss of a number of itemized deductions until they receive a tax bill from their accountant or tax advisor in a few months. Because of the increased tax burden, some clients may look for ways to increase deductions – one potential solution is to open and fund a DAF. “

Though the markets decreased significantly at the end of 2018, very few advisors felt that this impacted their HNW clients’ year-end giving.  Some smaller donors may have changed their giving plans, but this was not widespread since donors give generously primarily because they want to support their favorite organizations.

These Heckerling conversations were helpful and confirmed that 2019 will again be a busy year for DAFs. The Lilly Family School of Philanthropy just released a report in which they projected that charitable giving would grow by 3.4% in 2019 and 4.1% in 2020. More attorneys and CPAs are increasingly recommending that their clients should open donor advised funds, but often leave it up to the clients to find a DAF sponsor. Without direction, the clients could open a donor advised fund that is not ideal. Financial advisors should reach out to these other advisors and let them know that if they recommend that their mutual clients should open DAFs, that the financial advisor can do this and manage the assets in the account.

At American Endowment Foundation, we look forward to helping you and your clients build a tax-smart charitable plan. Contact us or call at 1-888-966-8170.