Donations rise for first time in three years

Posted Aug. 01, 2011, at 10:46 p.m.

NEW YORK — Philanthropy in the United States is back on an upswing after declining in the wake of the financial crisis.

Two of the three biggest donor-advised funds reported double-digit growth in donations for the fiscal year ended June 30. Further, overall giving in the U.S. rose 3.8 percent in 2010, the first increase since 2007, according to a report released last month.

“Giving is historically a lagging indicator. Donors felt a sense of optimism in fourth quarter 2010 and that helped donations,” said Robert Evans, a consultant to nonprofits and a member of the editorial review board of Giving USA, which publishes annual reports on philanthropy.

In 2008, donations to charities in the U.S. dropped for the first time in two decades. Until then, total giving had increased 2.7 percent per year on average since 1987. Donations fell 2 percent in 2008, and another 6.5 percent in 2009.

Donations totaled $280 billion in 2009, slightly below the 2005 total. But that changed in 2010, as total dollars donated rose to $291 billion.

“Giving is [on] an upward trend,” Evans said. “But the cut in the economy was so bad that it will take a few years before we get back to precrisis levels.”

Donor-advised funds are seeing strong growth. With these funds, donors put money, securities or even art into an account managed by a nonprofit organization. The initial donation into the account varies from a minimum of $5,000 to $25,000.

Charities receive the same amount of money, but donors can compile all of their charitable giving through the same account. Donors enjoy an immediate tax deduction on cash contributions, and avoid capital-gains taxes when transferring shares and other assets into the account. Essentially, donors get more grant value for their money than converting the assets to cash on their own and donating the money to charities.

“Fifty-nine percent of our donations come from appreciated securities,” said Benjamin Pierce, president at Vanguard Charitable, which saw its yearly donations rise 19 percent in the fiscal year ended June 2011.

“It’s the best way to give as you get two tax breaks. It’s a great solution for large-income individuals. You can’t donate shares to a soup kitchen, because it’s unlikely it has a brokerage license, so this is an effective way to give,” he said.

Donor-advised funds also offer lower management expenses than operating a private foundation. “If they donate $2 million a year and the fee rate is 2 percent, it’s $40,000 a year, which is less than the equivalent of [paying] a full-time person. It’s substantially cheaper to open an account at a donor-advised fund,” Pierce said.

Along with Vanguard Charitable, the biggest donor-advised funds are Fidelity Charitable and Schwab Charitable, where donations rose 31 percent and 8 percent respectively in the past year.

Fund donors are typically high-net-worth individuals who are looking for a way to do all charitable giving through one vehicle and take advantage of the tax breaks, said Amy Danforth, senior vice president at Fidelity Charitable.

“Donors can invest money into pools and create money tax-free,” she said. “They don’t have to grant the money right away, but can save for longer-term projects.”

Charitable giving in the U.S. correlates with the stock market, philanthropy experts say. The Dow Jones Industrial Average is up about 4 percent so far this year — and that bodes well for donations — but it’s unclear whether the trend will continue, given that the index notched a 2.2 percent loss in July, its third straight monthly loss.

Another potential hit to charitable giving: a tax-code revamp.

When the tax code was overhauled in 1987, donations declined for the first time since 1956, and that drop came on the heels of a strong previous year for philanthropy.

“It’s possible that the same thing will happen this year,” Evans said. “We’re likely to see more donations in 2011 than 2012 if the changed tax code comes through.”

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