Schwab Charitable reported Thursday it received record annual contributions to its donor-advised fund in fiscal year 2010, driven by the surge in the stock market last year and the conversion of private foundations to donor-advised funds that were less costly and time consuming.

The national donor-advised fund organization revealed that it received over $925 million in contributions in fiscal year 2010, the highest level in its 10 year operating history.  A donor-advised fund is a charitable vehicle that allows individual donors to have as close to a private-foundation experience as possible, in terms of asset management, grant making and personalized attention. This helps remove administrative work and similar nuisances that pose barriers to giving and helps to realize the greatest possible tax benefits of charitable giving.

Contributions to Schwab Charitable’s donor-advised fund for the twelve month period ended June 30th rose to over $925 million, up 92% from the previous fiscal year. At the same time, the financial crisis cut into overall charitable giving in the U.S. by 3.6%, lowering total giving dollars to $303.75 billion last year - the first decline in giving since 1987, according to Indiana University’s Center on Philanthropy and GivingUSA Foundation statistics released last month.

Schwab Charitable’s grants to charities also soared to just under $435 million, or 21% of average assets, compared with an average annual distribution rate from private foundations of approximately 6% of assets. Ending assets under management were $2.4 billion, up 30%. “When you see assets move from private foundations to donor-advised funds that generally means the money will get to charity faster,” said Wright-Violich. “In donor-advised funds, on an individual account level there is no minimum distribution and contributions to charity are around 20%. In private foundations the minimum distribution is around 5% and giving is around 6%.”

“Until May the market was doing reasonably well and the predominant vehicle to fund charitable giving is appreciatable securities,” said Kim Wright-Violich, president of Schwab Charitable, in a phone conversation on Thursday.  “The second driving factor for the increase in donations is private foundations and supporting organizations looking for solutions that are less expensive. If you want to increase the amount that goes to charity you have to get the costs of vehicles down.”

Yet not all of the dollars moving into donor-advised funds are new dollars to charity, said Wright-Violich. About 30% of the increase in annual contributions came from donors converting from private foundations or other vehicles, she explained.

Another 30% of contributions stemmed from the increase in the stock market until early May of this year. Gifts of appreciated securities increased from 49% to 65% of total contributions, driven by a healthier stock market.

But with the decline in stock market performance since May Schwab Charitable may not see the same kind of positive inflows that it is currently seeing. “What we’re anticipating next year is a plateau where contributions are about the same as this year,” Wright-Violich said.  “If you look at the macro trends of Schwab Charitable, we had down years in 2001 and last year, but for the most part contributions increase every year. It’s pretty predictable that contributions are growing, which is true of charitable giving overall. I don’t think we’ll see a reversal. I think we’ll see a lot more growth.”

Another plus for donor-advised funds like Schwab Charitable are Roth IRA conversions. Schwab Charitable is hopping on the Roth IRA conversion bandwagon, urging wealthy investors to take advantage of lifted income caps to lower their subsequent tax exposure through charitable donations. One of the few things individuals can do to offset taxes from Roth IRA conversions is to give to charity.

In its How Charitable Giving Can Help Reduce Taxes Resulting from Roth IRA Conversions the donor-advised fund wrote that the deductibility limit to most charities is 50% of adjusted gross income for gifts of cash, or 30% for gifts of appreciated securities. Gifts of appreciated securities held more than a year also avoid capital gains tax when they’re eventually sold.
Nonetheless, total assets in donor-advised funds, including those run by Fidelity Investments and others, is around $25 billion, while the total assets given to charity overall is approximately $300 billion per year. Right now donor-advised funds are only a drop in the bucket in terms of the total giving universe, but Wright-Violich sees this stabilizing in the coming years. 

Schwab Charitable has raised over $4.6 billion and has facilitated almost $2 billion in grants to charity in the last ten years, with account sizes ranging from $5,000 to over $200 million. 

“We are inspired by the generosity of our donors in this uncertain and volatile financial environment,” Wright-Violich said.

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