The Voice of the Advisor: 2018 & Year-End Charitable GivingSubmitted by American Endowment Foundation on November 5th, 2018
By Ken Nopar
For many reasons, 2018 has become another record-breaking year for donations to donor advised funds (DAFs). Donations for the first three-quarters of the year have increased 184% to American Endowment Foundation (AEF), as both the initial gifts to the many newly-established DAF accounts and additional gifts to already-established accounts are up significantly.
This trend seems to be accelerating as year-end approaches and perhaps because of the recent market volatility. To get the thoughts of leading wealth advisors and firms, we reached out to some members of AEF’s Council of Advisors so they could share their insight about what they are seeing and what they are recommending to clients.
“ We are telling clients that year-end 2018 is a good time to accelerate charitable gifting. In year 10 of a bull market, many clients have highly appreciated, low cost securities that are at expensive prices.
We will want to trim some of these holdings in January to manage downside risk (we tend to defer taking gains until the next tax year while we harvest losses at year end). So, gifting now will accelerate a 2018 income tax deduction and reduce 2019 capital gains.
Furthermore, under the new tax law many clients will no longer be able to itemize deductions, thus it can be better to load charitable gifting into one year and break through the itemization threshold rather than giving consistent annual amounts that leave you under the mark.” Greg Singer, Head of Client Solutions Group, Capital Group Private Client Services
“ We have definitely seen an increase in clients using DAFs or being open to them in the last couple of years. At this point in the market cycle, where unrealized gains are prevalent in client portfolios from years of a bull market, we are helping clients think about how to perhaps pre-fund 3 or more years of charitable gifts through donation of appreciated securities to DAFs or the end charities themselves.
We help review a portfolio for securities which are good candidates for donation - where the gains are material ...and then help them rebalance their portfolio around the donated stock with basis at today’s prices. It is an easy way to help those in the highest tax brackets be more thoughtful about their income tax and charitable planning.
In addition, this isn’t different this year, but the amount of those who have had a business transition or liquidity event has increased, again given the current economic client. In a big income year, we also tend to advise clients who are charitably inclined to pre-fund their donations to help offset some of the burden.” Rebekah Kohmescher, CEO, Altair Advisers, LLC
“ We are telling clients that if they consider charitable donations as part of their annual budget they should consider front-loading the donations through their donor advised fund. Strong equity markets have created plenty of opportunity to use highly appreciated stock to fund or replenish the DAF. The current tax law has doubled the standard deduction so there are clients who no longer will itemize their deductions ...however, the front-loading of the DAF can ensure that they can itemize in 2018 (assuming the charitable donation combined with other deductions can exceed the standard deduction).” Gavin Morrissey, Managing Partner, FSA Wealth Management
Other advisors have shared additional thoughts about why DAFs are especially popular among clients now:
- Want to support their favorite charities, but want to make grants to them over time instead of all at once
- Concern about direction of markets, so they make the donation to a DAF now while asset value is high
- Approaching retirement so want to pre-fund giving now while income is very high instead of funding during retirement when income is lower.
- Have successful businesses now and want to set aside money for consistent level of charitable giving in future should business have down year(s)
Fortunately, since the 2017 Tax Cuts and Jobs Act passed late last year, more advisors have already had these conversations with clients earlier this year. However, it is not too late to start or finish these discussions and to implement the plan so the clients, advisors, and charitable recipients can avoid the typical December frenzy.
At American Endowment Foundation, we look forward to discussing the myriad ways that a donor advised fund can solve tax and charitable giving concerns. Contact us or call at 1-888-660-4508 to learn more.