Tax reform, disasters fuel record philanthropy
Charles Schwab’s nonprofit division predicts U.S. philanthropy will hit record highs this year, driven by natural disasters, the mass shooting in Las Vegas and potential tax reform.
Total grants through the custodian’s donor-advised fund provider jumped 34% this past fiscal year to $1.6 billion, according to Schwab Charitable President Kim Laughton. She declines to estimate the country’s overall donations, but research organization Giving USA tracked a record $390 billion in charitable contributions in 2016.
Schwab and many firms service donor-advised funds, and charitable organizations have warned that a GOP tax reform plan to double the standard deduction could hurt fundraising efforts. They fear a higher standard write-off may keep filers from itemizing deductions, which would reduce the incentive for charitable giving.
Investment returns in the bull market and a looming deadline at the end of the year requiring hedge-fund managers to repatriate their deferred offshore income also serve as factors in the greater giving this year, Laughton said in an interview this week.
“This year will be a year that people will want the certainty of their charitable deduction and potentially give a little bit earlier rather than waiting until next year,” she says.
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A ‘HOT BUTTON’ ISSUE FOR YOUR WEALTHIEST CLIENTS
Schwab’s retail clients remain the primary source of Schwab Charitable’s donations, with only about 1,800 advisors on the platform. Only 42% of its accounts come from advisors, even after four straight years of increases.
The custodian has roughly 7,000 affiliated advisors, and any advisor can open accounts for their clients through Schwab’s charitable arm.
Assets given through advisors “continue to grow pretty quickly, but it’s just an awareness issue,” Laughton adds. "Some advisors are more comfortable bringing up the conversation than others."
The products’ tax savings come from donating earnings on stocks without paying taxes on the capital gains. Best practices for charitable giving also include making sure the client has reached their 50s to take the most advantage of the deduction, says Eric Aanes, president of Titus Wealth Management.
Clients of the Larkspur, California-based hybrid RIA have expressed more interest in donating to charities this year than in the past, Aanes says. For clients with estate planning needs and assets of $11 million or more, philanthropy involves hiring the right accountant to handle multifaceted tax maneuvers, he says.
“That’s where it gets a little hairy, because someone does have to do that work,” says Aanes. Philanthropy, he adds, is “certainly a hot button, but only for your ultrahigh-net-worth clients who are ones that are charitably inclined.”
MORE TO CHARITY, LESS TO UNCLE SAM
The year-end due date for hedge fund managers to bring their offshore gains back to the U.S. will prompt some to donate more to charities for the tax incentive, Laughton notes. The combined tax bill for the managers could amount to as much as $100 billion, experts told The Wall Street Journal this summer.
Advisors already play a large role in helping clients save on taxes while donating to charity. Although many Schwab-affiliated advisors have yet to open Schwab Charitable accounts, about 80% of advisors offer charitable planning services, Laughton says.
Schwab Charitable also allows advisors to actively manage their clients’ investments in accounts larger than $250,000. With 68% of its donations for the recently ended fiscal year being non-cash, Schwab donors received more than $310 million in collective tax savings, according to the firm. Those non-cash contributions included stocks, ETFs, mutual funds, privately held business interests, real estate and other assets.