Charitable giving gets a postelection boost

Americans are a generous lot. While it's too soon to tell, 2016 may go down as a record-setting year for certain charitable contributions, in part as fallout from the election of Donald Trump.

First, a healthy stock market fuels charitable giving. Between Election Day and year end, the "Trump bump" pushed the S&P 500 to eight all time highs, reaching 2271.72 on Dec. 13, and closed the year at 2238.83, a total return of nearly 12 percent. While the Trump bull market may not last, donations for 2016 had to be made by Dec. 31 to qualify for a tax deduction, so the stage was set for a strong year for charitable donations.

Second, with a Republican Congress and a Republican president promising lower individual tax rates and a cap on itemized deductions, some charitable-minded financial advisers were urging clients to make donations in 2016 to maximize the tax-saving value of charitable contributions.

Third, surges in charitable giving were reported immediately following the election for charities supporting causes such as women's health, environmental, education and social issues deemed threatened by the incoming administration.

While the campaign focused negative attention on large charitable foundations linked to Donald Trump and Hillary Clinton, charitable donations on Giving Tuesday, the online donation day after Thanksgiving, were up by 44 percent over the previous year, to $168 million worldwide, according to news reports.

It's too soon to get a definitive number for 2016, but total charitable giving from all sources has hovered around 2 percent of gross domestic product (GDP) recently, slightly up from its 40-year average of 1.9 percent, according to the Giving Institute, and totaled more than $373 billion in 2015. Individual giving is the single largest category, at nearly 71 percent of the total. Foundations, bequests and corporate giving make up the rest.

The fastest-growing category is individually directed Donor Advised Funds (DAFs). These funds allow individuals and families to set up their own mini-foundation under the umbrella of an approved charity, with as little as a $5,000 initial donation. They receive an immediate tax benefit but can invest the assets and recommend grants that express their charitable priorities over time. Contributions to DAFs totaled nearly $23 billion, or 6 percent of total giving, and paid out grants totaling $14.5 billion in 2015, according to the National Philanthropic Trust.

The number of DAFs has grown each year since 2007. At the end of 2015, an estimated 269,000 DAFs were in existence in the U.S., up 11 percent from the previous year, and held more than $78 billion in total assets.

The fees to administer DAFs, manage the assets and disburse grants typically range around 1 percent and have become an important source of revenue for organizations that compete to manage them. The lowest cost are typically the nonprofit arms of investment firms. Other DAF sponsors are either single-issue charities such as religious organizations or community foundations.

For a more up-to-the minute postelection view, I spoke with Bill Sternberg, vice president for philanthropic advising at the Minneapolis Foundation, the No. 1 grant maker to organizations within the state.

In 2016, the foundation gave out $57.3 million in grants, $40 million of that from donor-advised funds. While DAF grants dipped slightly from 2015, the number of new funds grew 26 percent while the amount individuals contributed to DAFs surged 40 percent. Total charitable assets managed by the foundation now approach $700 million with just under 50 percent held in donor-advised funds.

Sternberg identified three factors driving the growth. "We are seeing much more involvement of multigenerational families in the giving process," he said, which benefits a community foundation that can help families explore their philanthropic interests and learn about local nonprofits. He also sees greater interest among younger generation donors, not just on where to make grants, but also "impact investing" — putting fund assets in local community-development banks, socially responsible stock and bond portfolios or in social ventures in the community.

Finally, he said that the election did have an impact. Anecdotally, he sensed donors are "getting more focused" on where they think their charitable grants will be needed most to counter what they see as new policy directions on social programs, health care, education and the environment for example.

Sternberg thinks the effect of some policy proposals on charitable giving are still unknown. If the estate tax is eliminated, as Republicans are pushing for, that may lower charitable contributions. In addition, lower income tax rates will lessen the value of a charitable contribution, but also put more money into affluent taxpayers' pockets. How much of that extra spendable income finds its way to charitable causes is anybody's guess.

Brad Allen is a freelance journalist and former investor relations executive for companies including Imation Corp. and Cray Research. His e-mail is brad@bdallen.com.