Major Gifts from Managed Funds

Big gifts are being given in different ways, and we’re watching the trends in 2020 – advice from our newest team member.

Meet Adi Hila Yoffe, our new Director of Business Development. Adi Hila comes from a background in government and nonprofit organizations, and most recently with a startup focused on social innovation.

She has her finger on the pulse of nonprofit trends. “It’s so important to look at industry-wide patterns and how they’re showing up in your donors’ behavior – especially when you’re planning your fundraising strategy at the beginning of the year,” Adi Hila says.

We’re seeing a rise in major gifts in the form of Donor Advised Funds, Qualified Charitable Distributions, and even stock. Here’s what we think fundraisers should be prepared for in 2020.

QCDs

Qualified Charitable Deductions (QCDs) are gaining popularity and will continue to rise with new tax laws coming into effect. When soliciting major gifts in 2020, you might consider urging donors to make QCD gifts. “QCDs are a win-win situation for nonprofits and donors alike,” Adi Hila points out. “Donors get an immediate tax benefit on their retirement funds, and organizations can encourage major giving without putting stress on donors’ income.”

As of Jan 1, 2020, retirement accounts such as IRAs now have a Required Minimum Distribution for individuals aged 72 and up. This minimum is calculated by tax bracket and is mandatory for all retirement account holders in the United States. This means you must withdraw a minimum amount from your retirement account. That withdrawal becomes taxable income.

You can elect to give that withdrawn amount to a charity instead of having taxed as income. Instead, it becomes a Qualified Charitable Deduction (QCD).

A voluntary QCD can be made directly from an IRA retirement account by donors over the age of 70.5 – it’s only after age 72 that the distribution becomes mandatory. At whatever point it’s made, a QCD enables donors to reduce the tax they pay on mandatory retirement funds while also reinvesting those savings into causes that matter to them. QCDs are directly attributable to the individual donors, which allows for better stewardship in fundraising.

When planning your organization’s 2020 fundraising strategy, be sure to include QCDs in your toolbox. Identify donors in your database with the capacity to make a QCD. Encourage them to increase their giving this year by making a QCD gift.

Donations of Stock

Making donations of stocks is not a new idea, but it’s one that is gaining popularity now. Our clients accept donations of stock because it’s a highly appealing way for donors to make substantial gifts with immediate benefits for the donor.

Adi Hila explains: “Let’s say you purchased stock in ‘CoCoCompany’ for $1 per share in January, and by December it reached $10 per share. If you donate 10 shares of that stock to a charity, you’d be making a donation of $100, since that’s 10x the value of $10 at closing on the day you make the donation.

“The thing is, you only paid $10 for those shares – 10x $1 at the beginning of the year. Your out-of-pocket amount is the original purchase price, but the gift to the organization is the stock value.”

Stock donations are especially appealing because a donor is not taxed on the capital gains. The $90 difference between the initial purchase and the stock sale is not taxed as income or gains.

To receive stock donations, your organization has to engage a brokerage firm, which would handle the purchase and sale of the donated stock for you. Talk to your organization’s finance advisors about the best way for you to receive donations of stock.

Donor Advised Funds

DAFs are savings accounts managed by a charitable giving group – you’ll recognize big names like Fidelity, Charles Schwab, JCF. These institutions receive funds from donors as a charitable gift, for which donors receive a tax deduction for the full amount. Then, under the advisement of the donor, those funds in the account are disbursed to other charities later.

The benefit to the donor is obvious – a large amount of otherwise taxable income is placed into a holding account that becomes tax-deductible and can be used for philanthropy.

Since the recent tax law changes, we’ve seen a rising trend where donors contribute large sums to their DAFs every other year and making disbursements over 24 months. Because the new tax laws have affected itemized deductions, large lump-sum deductions like DAF contributions are more appealing.

Not all DAFs are created equal. Each offers different choices and percentages, with varying administrative rules or minimum requirements. Depending on those rules, DAF donors may have the option to contribute to nonprofits anonymously or to omit their contact information on the gift. This can make a fundraiser’s job of stewardship and donor cultivation more difficult.

DAFs change the landscape for fundraisers – identifying prospective donors is harder when they can give anonymously through managed funds.

Make the most of this trend by encouraging your existing donors to increase their DAF disbursements. Identify the donors in your database who have the means to make DAF contributions. Even though you’re not their financial advisor you can still suggest DAF contributions as a means of having a bigger impact.

Just because a donor gives to your cause through a managed fund doesn’t mean they’re taking a more proactive stance on philanthropy. Money in DAF doesn’t come to you unless you solicit it. Continue to treat DAF donors as individuals, not as foundations or organizations. Cultivate and steward DAF donors the way you normally would – personally.

Please note that Perry Davis Associates is not a financial advisory group. Finance decisions should not be made based on our observations. Please consult your financial adviser.