Charitable giving rose during the first half of the year as advisers made tax planning a greater focus amid stock market gains that raised the specter of stiff capital gains levies.
Contributions to charitable accounts and grants to organizations both climbed for providers of donor-advised funds. In addition, assets under management rose sharply.
During the first six months of the year, donors chipped in $879 million into charitable accounts at Fidelity Charitable, up 7% from the same period of last year. Even more money was doled out in the form of grants: Donors recommended some 214,000 grants, reaching a total of $919 million — up 33% from the comparable period in 2012. Assets under management at the unit surged 35% to $10.1 billion as of June 30, up from $7.5 billion in the year ago period.
At Schwab Charitable, grants for the 2013 fiscal year, ended June 30, topped $600 million, an increase of 12% from fiscal year 2012. Assets under management at the firm reached $4.8 million, climbing by 55% from the previous year.
And at Vanguard Charitable, assets under management within the firm's donor-advised fund complex hit $3.59 billion for the first six months of 2013, reflecting an increase of 30% from $2.75 billion a year earlier. Over the first half of the year, $250 million in grants were made.
Executives said investor interest in giving was driven mainly by higher tax rates, which pushed them, and their advisers, to seek ways to minimize the hit from Uncle Sam.
“The increase in
charitable giving is coming as the result of three conversations: tax planning, more general
financial planning and
estate planning,” said James Barnes, chief relationship officer at Vanguard Charitable.
At the beginning of the year, Congress set the estate tax exemption for 2013 at $5.25 million per person and the estate tax rate at 40%. This year, spouses can also exclude up to $28,000 together in donations.
“For the last five years, estate and gift taxes have been a roller coaster of uncertainty,” Mr. Barnes said. “Now there's some relative certainty and that piques people's curiosity about the topic of doing good in the world.”
The stock market's steady upward march has also helped. The S&P 500 has climbed by 18.64% year-to-date.
Those gains have driven discussions on capital gains rates: The top marginal long-term capital gains and qualified-
dividend rate is 23.8% when counting the 3.8% Medicare surtax. Short-term capital gains and nonqualified dividends are taxed at 43.4%, inclusive of the 3.8% Medicare surtax.
A possible solution? Move the more harshly taxed assets to a donor-advised fund.
“It goes without saying that with higher tax rates, there are even more advantages to find appreciated assets,” said Sarah Libbey, president of Fidelity Charitable.
Indeed, there are benefits to making
charitable giving a viable part of a planning strategy. For instance, Ms. Libbey pointed out that advisers who are recommending
Roth conversions this year could try to offset the income tax tied to it by suggesting that clients make an outside charitable gift.
“Advisers who bring up
charitable giving and philanthropy feel they get a more holistic view of the client and get closer, not only to them but to the family network,” she said. “Many of them struggle getting to know the children of clients when they're aging. This is one of the ways to help.”
