Charitable giving remains a high priority as individuals, bequests, foundations, and corporations donated nearly $500 billion in 2022. Individual contributions comprised more than two-thirds of total giving. [Giving USA 2023 Report].
Accordingly, wealth managers often do play a lead role in helping their clients create and initiate philanthropic strategies. A 2023 BNY Mellon charitable giving study of high-net-worth investors found that 63% of respondents worked with their wealth managers to develop their charitable giving strategies.
If you have been contemplating whether to initiate conversations with clients about their charitable ambitions, consider that:
- Charitable giving is a key component to holistic wealth planning.
- Speaking with clients about their deeply held values can strengthen relationships.
- Supporting a client’s giving strategy will solidify your role as a resource for generations of family members.
Donor advised funds (DAFs) are a great tool to consider if you have philanthropic clients or those who just want to support a particular mission or organization. DAFs are an increasingly popular and flexible means of charitable giving. As the nation’s fastest-growing philanthropic vehicle, DAFs address several items that investors typically care about, including giving to worthy causes, reducing tax burdens, and creating a legacy for their heirs.
A DAF allows an individual to make a binding contribution to an account managed by a sponsoring nonprofit organization and still maintain the right to participate in certain aspects of how the money is invested and distributed to charities. DAFs can be funded immediately and, with ongoing periodic contributions, can lay the foundation for multi-generational giving. They can also be funded upon the individual's death and even be the beneficiary of charitable remainder or lead trusts. Clients who have strong philanthropic intentions often seek to give consistently, year after year.
The profile of clients using DAFs keeps expanding. Up until two years ago, retirees, families and married couples were the primary users of DAFs. Today, people who have never married, couples without children, divorcees, widowed individuals, and younger people are establishing many of the accounts.
For example, advisors may encourage affluent clients nearing retirement to establish and begin contributing to DAF accounts in the near term, rather than waiting. Contributing while working and drawing higher income may result in immediate tax benefits. Then, once clients have retired and their incomes and tax rates are lower, they can make generous grants from their DAF accounts while donated assets may continue to grow tax-free.