New Thoughts for Year-End Charitable Giving

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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) DAF. Gifts to the many newly-established DAF accounts and additional gifts to already-established accounts are up significantly.

This trend is accelerating as year-end approaches and also perhaps because of the recent market volatility. To get the thoughts of leading wealth advisors and firms, I reached out to some members of AEF’s council of advisors so they could share their insights about what they are seeing and what they are recommending to clients.

Greg Singer, head of the client solutions group at Los Angeles-based Capital Group Private Client Services, told me the following:

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.

Rebekah Kohmescher, CEO of Chicago-based Altair Advisers, LLC, added the following:

We have definitely seen an increase in clients using or being open to DAFs in the last couple of years. At this point in the market cycle, where unrealized gains are prevalent in client portfolios from a multi-year bull market, we are helping clients think about how to perhaps pre-fund three or more years of charitable gifts through the 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. We then help them rebalance their portfolio around the donated stock with its 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 – and this isn’t different this year – 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.