Tax reform debate sparks fresh interest in donor-advised funds

Schwab reports new accounts up 50% from last year, assets up 33%

Nov 21, 2017 @ 1:00 pm

By Jeff Benjamin

The battle over tax reform in Washington has not been lost on financial advisers and investors looking to take advantage of existing charitable-giving rules.

Kim Laughton, president of Schwab Charitable, said assets in donor-advised funds are up 33% over the past year, and new accounts are up 50%.

"People are wanting to give ahead of any tax-law changes," she said, adding that tax laws related to charitable giving have historically been left untouched.

Under both the House and Senate tax bills, charitable contributions would still be deductible. But by roughly doubling the standard deduction, both bills would likely reduce the number of taxpayers who would itemize, and that's the only way you can claim charitable deductions.

The latest surge in activity in donor-advised funds, which allow investors to make tax-deductible contributions in any tax year and spread out the actual donation to charities over time, follows the surge seen following last year's presidential election.

Prior to last year, Ms. Laughton said the last time she saw this kind of interest in donor-advised funds was in 2012 when investors were making contributions ahead of the new taxes from Obamacare.

"Certainly, when there is talk of tax changes, people want to lock in the current benefits," she said.

At $11 billion, Schwab Charitable is among the largest players in the nearly $90 billion donor-advised funds space.

Ms. Laughton estimates that Schwab's donor-advised funds will bring in $3 billion and grant out $2 billion in 2017.

Fidelity Charitable, which is the largest provider of donor-advised funds at more than $16 billion is also experiencing increased activity.

Fidelity couldn't provide 2017 data, but a spokesman said the increased interest this year is comparable to the spike in interest last year following the surprise election of Donald Trump, who had campaigned on tax reform.

In 2016, Fidelity Charitable received $6.9 billion in contributions, up from $4.1 billion in 2015.

Fidelity's donor-advised funds granted $3.5 billion last year, up from $3.1 billion in 2015.

Donor-advised funds represent about a quarter of the $390 billion counted as all charitable donations, according to Giving USA.

Between 75% and 80% of donor-advised fund assets come in through financial advisers.

As Ms. Laughton explained, the appeal of donor-advised funds is also gaining traction because of where we are in the market cycle.

Nine years into a bull market for stocks, there are a lot of appreciated assets that can be contributed to a donor-advised fund for maximum tax advantage.

While cash is considered the most expensive way to donate to charity, investors can donate up to 50% of their adjusted gross income in the form of cash, and the equivalent of up to 30% of adjusted gross income can be donated in the form of securities.

"Advisers really understand the tax issues, and they can think ahead about how to best make contributions," Ms. Laughton said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

CAIS's Brown: Big trends in wealth management

One of the biggest trends of 2017 was traditional institutional asset managers aiming their services at RIAs. How will this impact 2018? Matt Brown of CAIS explains.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Tax update: Brady says sales tax deduction in final bill

Taxpayers will be able to deduct state income taxes or state sales taxes in addition to property levies — up to a $10,000 cap.

Critics say regulation hasn't curbed overly rosy projections for indexed universal life insurance

They say rule didn't go far enough and more stringent measures may be necessary.

Broker, retirement groups make last-minute pleas to change tax legislation

Pass-through provisions are target of groups representing employee-model brokerage firms, as well as retirement plan advisers.

House and Senate reach tentative compromise for tax overhaul

Lawmakers still need to get a cost analysis of their agreement, so it's not yet definite, according to a source.

Advisers' biggest fears for 2018

What keeps advisers up at night.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print