Assets in donor-advised funds leapt last year amid a sharp increase in user contributions and stock-market gains, trends that are poised to continue as millennials increase their giving and the U.S. bull market runs on.
Contributions to donor-advised funds rose 7.6% in 2016 to $23.27 billion, according to an annual report by National Philanthropic Trust, a donor-advised fund that manages $4.6 billion in charitable assets for individuals and corporations. At year’s end, total charitable assets in the accounts rose 9.7% to $85.15 billion, boosted by market gains; the S&P 500 finished 2016 with a 9.5% increase.
Grants from the funds—which let investors receive a tax deduction for a donation immediately but give them flexibility to make charitable grants at another time—to qualified charities totaled $15.75 billion in 2016, up 10.4% from the year before.
Growth in these funds is expected to continue as millennials move into their higher wage-earning years, says Eileen Heisman, chief executive of National Philanthropic Trust.
Also appealing to millennials, she says: The ability to donate cryptocurrencies, including bitcoin, to build their charitable assets and the ability to make donor-advised contributions from smartphones.
Still, for all the success, donor-advised funds face a test from Republicans’ proposed tax overhaul.
If implemented, the GOP plan to double the standard deduction (and hence reduce the number of people likely to use the charitable deduction) could reduce the tax benefits of giving to a donor-advised fund and philanthropy in general, says Ms. Heisman.
While this could have a positive effect on contributions to donor-advised funds in the short term (as people take advantage of existing tax policy), it could have a negative effect on all charitable giving in the long term, she says.
Against this backdrop, Jeff Fishman, a financial adviser at JSF Financial LLC in Los Angeles, is telling clients to consider accelerating any charitable giving they were planning to do in early 2018 into the end of this year instead.
To get the most out of existing tax breaks (which may be reduced if the plan goes through), donate appreciated stocks to charities and donor-advised funds by Dec. 31, says Mr. Fishman.
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