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Beyond 2%: How Donor-Advised Funds Help Increase Charitable Giving

How Donor-Advised Funds Can Boost Charitable Giving

As with any endeavor, you want to make the most of your charitable giving. You’d like to donate to charities in an efficient and effective manner that helps stretch your funds as far as they can go to help others.

One way to help maximize your giving is through donor-advised funds, which allow you to contribute cash or appreciated assets to a charitable account. As an account holder, you can realize tax benefits and support your favorite charities over time.

“Donor-advised funds offer a simple, efficient and tax-smart solution for people of all income and wealth levels,” says Kim Laughton, President of Schwab Charitable. “Our charitable account sizes range from $5,000 to more than $500 million.”

Here, we’ll take a closer look at how donor-advised funds work and how they can help ensure your generosity has the greatest impact on worthy causes and your tax bill.

How do donor-advised funds work?

A donor-advised fund can be an easy, tax-efficient way to give during your lifetime and beyond. You can open this type of account with a tax-deductible contribution and then make grants to any public charity over time.

Donor-advised funds have several key attractions:

Flexibility

Not all charities can accept appreciated assets directly, but if you place those assets in a donor-advised fund you can contribute cash, securities, real estate, art and other valuables.

Convenience

You can contribute to the account at any time and claim an immediate tax deduction. But you can take a more strategic approach to when and how to distribute the gifts to charities.

Tax efficiency

Contributing appreciated securities or other assets to a donor-advised fund—instead of selling the assets first—can help you avoid paying capital gains taxes on those assets. That means more of the money can go to charity.

Going beyond 2%

Americans are among the most generous people in the world. Approximately 83% of us donate to charitable causes.But Americans’ widespread giving masks another statistic. The overall level of charitable giving in the United States has remained the same for the past 40 years, at roughly 2% of household disposable income.2

How much do we really give?

As with many other aspects of human behavior, we often have an “above-average bias” when it comes to giving, and overestimate our performance relative to our peers.

“When individuals realize that their giving is far more modest than they thought, they are often motivated to give more,” says Kim. “And if we each gave just a bit more, we would see a tremendous impact on total giving.”

For example, if those who currently give less than 2% of their disposable income were to increase their charitable gifts by just 0.5%, an additional $23 billion would be available to support schools, hospitals, museums, homeless shelters, job training programs and other charities.3

Chart 1: Charitable giving, perception vs reality

Growth potential

Investing charitable assets can potentially help you give more over a longer period. You can choose from a wide range of investments to suit your charitable goals. For example, here’s a hypothetical illustration of the potential tax savings from donating appreciated stock directly to charity, versus selling the stock and then giving the cash—after taxes—to charity. The example assumes you’re in the 28% tax bracket and donate $100,000 worth of stock.5

Chart 2: Charitable giving scenarios

Working together

Donor-advised funds may make sense for people who want to be more strategic about their philanthropy and create a legacy of giving for future generations. Together we can make a big difference.

Schwab Charitable donor-advised fund in 3 steps:

Contribute

A donor opens a Schwab Charitable account and makes an irrevocable, tax-deductible contribution of $5,000 or more in cash, appreciated assets or investments.

Invest

A donor may allocate his or her contributions among a variety of investment pools. Accounts with more than $250,000 can be professionally managed by an investment advisor. Investments have the potential for tax-free growth.

Grant

A donor recommends grants of $50 or more to qualified public charities of his or her choice over time.

1 Gallup, “Most Americans Practice Charitable Giving, Volunteerism,” 12/13/2013.

2 Giving USA, The Annual Report on Philanthropy for the Year 2014, Giving USA Foundation, 2015.

Indiana University Lilly Family School of Philanthropy analysis of 2012 tax returns.

4 Camber Collective, “Money for Good: Final Report,” 07/2015.

5 The example assumes that the cost basis is $5,000, that the investment has been held for more than a year and that all realized gains are subject to a 15% long-term capital gains tax rate. It does not take into account any state or local taxes. The example assumes that the donor is in the 28% federal income tax bracket and does not take into account any state or local taxes. Certain federal income tax deductions, including the charitable contribution, are available only to taxpayers who itemize deductions, and may be subject to reduction for taxpayers with adjusted gross income (AGI) above certain levels. In addition, deductions for charitable contributions may be limited based on the type of property donated, the type of charity and the donor’s AGI. For example, deductions for contributions of appreciated property to public charities generally are limited to 30% of the donor’s AGI. Excess contributions may be carried forward for up to five years.

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Important disclosures:

A donor’s ability to claim itemized deductions is subject to a variety of limitations depending on the donor’s specific tax situation.

Contributions of certain real estate, private equity or other illiquid assets may be accepted via a charitable intermediary, with proceeds of your donation transferred to your donor-advised account upon liquidation. This intermediary considers donations on a case-by-case basis, and assets typically must be valued at $250,000 or more. Call Schwab Charitable for more information at 800-746-6216.

Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.

Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund, an independent nonprofit organization. Schwab Charitable Fund has entered into service agreements with certain affiliates of The Charles Schwab Corporation.

Schwab Charitable Fund is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund are considered an irrevocable gift and are not refundable. Please be aware that Schwab Charitable has exclusive legal control over the assets you have contributed. Although every effort has been made to ensure that the information provided is correct, Schwab Charitable cannot guarantee its accuracy. This information is not provided to the IRS.

©2016 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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