Making Room for the Unexpected in your Charitable Giving

Now that the holidays are behind us, we have all turned our attention to 2019. For some, this includes acting on New Year’s Resolutions. For others, it’s a time to assess what worked best in 2018 and what to improve in 2019. These decisions are playing out against a backdrop of uncertainty – in the financial markets, in the operation of the federal government, and in the impact of the changes in federal tax law. The uncertainty can make setting a charitable giving budget challenging.

We’ve written here before about strategies to maximize your charitable giving in light of the higher threshold for the standard deduction that a taxpayer can deduct from their income each year if they choose not to itemize. What are other ways to manage through the uncertainty of the new year?

Plan for the unexpected:

Increasingly, donors are setting aside a portion of their charitable giving budget each year for disasters or emergencies. In recent years, these have included natural disasters like the devastating hurricanes in the Caribbean or the wildfires in California. In early 2019, some donors used these charitable dollars to aid government workers impacted by the shutdown of the federal government. Whatever the issue, planning for these emergency needs, even if they represent a relatively small portion of your giving budget, can help donors feel like they don’t have to reduce their giving in one area that is important to them to be responsive as new needs emerge. It can help address immediate need while not pulling donors off their anticipated giving course. Read more about disaster giving here: How to Help Neighbors and Communities in Time of a Natural Disaster.

Consider the full spectrum of generosity:

As we all know, generosity goes far beyond your charitable giving. You may be generous with your time, volunteering on a nonprofit board, serving in a volunteer capacity in local government, or with your children’s school. You may provide support for students who are in need of financial or other types of support to get an education or launch their careers. You may be launching a business or purchasing real estate to help further a social or community need. All of these decisions can help you calibrate your total generosity index. It can also help guide your choice of philanthropic vehicle, ranging from direct giving to more deliberate structures like donor advised funds, charitable trusts, foundations, or LLCs. Read more about How to Allocate Your Charitable Giving.

Let your passion lead you:

You can find joy in more than cleaning out your closets. What if you took all the buzz around Marie Kondo’s approach to organizing your life and applied it to your giving? What in your giving “sparks joy”? Many donors choose to reserve a portion of their giving budget each year for projects, issues, or organizations that spark their interest and their curiosity. In this case, uncertainty can lead to fulfillment and not distress.

We hope that the new year brings you fulfillment, a renewed sense of purpose, and joy.

Additional Resources:

About the Author:

Gioia PeruginiGioia Perugini is Associate Director, Family Office and Philanthropy Services at Hemenway & Barnes. She works with individuals, families, advisors, charitable trusts and foundations to provide a range of philanthropic and client services. Read Gioia’s full biography.


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Are you ready for Giving Tuesday? Kicking Off Year-End Giving

As the leaves finish falling from the trees here in New England, and coffee #GivingTuesdaycups of green, red, and blue appear alongside cranberry sauce and stuffing, we are turning our sights to year-end giving and a recurring theme of gratitude. Many donors have been working diligently on their giving lists all year, making gifts of various sizes and complexities. Others use the holiday time to come together with family and focus on what gifts they plan to make or what service activities they would like to do together. As in the past, we share a few year-end giving ideas that can make the holiday time more meaningful, and spread the season of giving throughout the year.

The #GivingTuesday Movement

Giving Tuesday is being celebrated this year on November 27, 2018, the Tuesday after Thanksgiving in the United States. Now in its seventh year, this “global giving movement” was founded by the 92nd Street Y in New York as a way to focus on giving during the days following Thanksgiving that had been more typically known for in-store and online shopping. It has evolved into a significant online global social movement. In 2017, #GivingTuesday resulted in 2.5 million online gifts which raised $300 million, along with over 2 billion social media impressions for the field of philanthropy and for participating organizations.

Some may want to share #MyGivingStory2018 this year and join this movement. Others may want to share in the spirit by drawing inspiration from the stories of others.

Impact of the Tax Cut and Jobs Act

Much has been written on the potential impact of the Tax Cut and Jobs Act of 2017 on charitable giving. While the full picture might not be known until the data on 2018 tax returns emerges, some studies published since the new law was enacted predict an overall drop in 2018 charitable giving of as much as $22 billion (a 5% drop from 2017 levels). Some reports from the first two quarters of 2018 appear to show a significant drop in charitable giving as compared to 2017. Opinions differ on whether changes in legal tax incentives are truly driving, or will drive, changes in charitable giving patterns, and on whether there will be a significant reduction in charitable giving for the year overall. For example, 2017 was a record year for charitable giving, in part because many tax advisors urged donors to make large charitable gifts at the end of 2017, at least in part to offset the higher 2017 tax rates. A corresponding drop in charitable giving in early 2018 might be a natural consequence of these efforts. Other potential donors may be temporarily holding off on giving in anticipation of “bunching” contributions in future years, or may otherwise be delaying the timing of their gifts, even if they intend to maintain past levels of giving in the aggregate.

My colleague Brad Bedingfield writes in great detail here about these issues, and it’s worth a read as you consider your year-end planning.

Disaster Giving

For many donors, Disaster Giving has become a regular part of their annual giving. From wildfires in California to other natural disasters locally and globally, planning for the unanticipated is now part of the picture. We often turn to strong local partners – including community foundations and pooled giving funds – when disaster strikes. The Center for Disaster Philanthropy is a go-to resource that compiles and vets charities working to provide immediate and long-term disaster relief.

Read more about disaster giving here: How to Help Neighbors and Communities in Time of a Natural Disaster.

Community Service

Serving together: Many individuals and families feel compelled to volunteerism, particularly at this time of year. Coming together in service to give back to those in need can help the next generation feel connected to the more abstract concept of “philanthropy” in a very tangible way. Volunteering at a local soup kitchen, organizing a food drive, or filling a family’s holiday gift wish list are simple activities where those of all ages can make an immediate impact. That can then spark conversations about important community issues, particularly with younger family members.

Implementing Your Giving Plan

We hope this time of year brings you happiness and a feeling of being connected to your community and issues you care about, whether local, national or global and wishing you peace and joy throughout the year. Giving can take many shapes and forms, and we hope this inspires you to do more during the holidays and beyond.

About the Author

Gioia PeruginiGioia Perugini is Associate Director, Family Office and Philanthropy Services at Hemenway & Barnes. She works with individuals, families, advisors, charitable trusts and foundations to provide a range of philanthropic and client services. Read Gioia’s full biography.

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Is this the Year to Create a Donor-Advised Fund?

Donor-Advised Funds are the fastest growing vehicles for charitable giving in the United States, and for good reason. They combine the high tax deductions of gifts to public charities with much of the personal involvement and customization enjoyed by those who have their own private foundations. Since 2012, contributions to DAFs have doubled, accounting for more than $7 billion in 2017, and they are set to keep growing.

The Higher Standard Deduction May Eliminate Tax Benefits of Charitable Contributions

Part of that new expected growth is related to a new set of tax rules that came into effect on January 1, 2018. In exchange for eliminating a bunch of other tax deductions, Congress has increased to $12,000 the so-called “standard deduction,” the amount that each person can deduct from her income each year if she chooses not to “itemize” her deductions. The key itemized deductions are the home mortgage interest deduction (now much more limited than it used to be), the state and local tax deduction (now capped at $10,000 per person), and the charitable deduction. A person who has more than $12,000 (or $24,000, for a married couple filing jointly) of these tax deductions will itemize – otherwise, she’ll take the standard deduction. As many as 20 million more Americans than in previous years will not have enough itemized deductions to exceed the new, higher standard deduction – for those taxpayers, their charitable contributions will no longer provide any tax benefit at all.

Strategies for Maximizing Tax Benefits of Charitable Gifts

There’s a relatively easy way around this, a strategy known as “bunching.” Imagine that someone regularly gives $5,000 per year to charity, and has $5,000 of other itemized deductions each year. Because the $12,000 standard deduction is higher, those itemized deductions do no good. However, imagine instead that the same donor gives $25,000 to charity in one year, and nothing for the next four years. She still gives the same aggregate amount to charity – however, in the year of the gift, she has $30,000 in itemized deductions, which exceeds the standard deduction, while claiming the $12,000 standard deduction in the other years. By “bunching” her contributions in this way, she gets a total of $78,000 in deductions over a five-year period, rather than $60,000 for claiming the standard deduction alone each year, which restores at least some of the tax benefits of making charitable gifts.

The key problem with this “bunching” strategy is that the donor may not want to give $25,000 in one year and nothing in other years – there may be good reasons why she wants to spread out her gifts evenly. That is where donor-advised funds come in.

Establishing a DAF

A donor-advised fund is a discrete account set up within a public charity. It can be named after the donor (for example, the “Mary Donor Charitable Fund,” or in some other fashion. While the charity controls the fund, the donor has the ability to provide advice regarding where contributions should go. For example, she can make that $25,000 gift to the fund once every five years, but then recommend that the fund spread that out in $5,000 annual payments to her favored charity, just as she was doing previously. And unlike a direct $25,000 gift to her favored charity, using a DAF also gives her the opportunity to recommend redirection of future year gifts to different charities if she decides that the funds will be better used elsewhere. As advisor to the DAF, she can continue to remain connected and engaged with her favorite causes and charities.

Now is the Time to Act

Establishing a donor-advised fund is easy – however, it is important to coordinate establishment and funding of the DAF with your personal tax and cash flow situation. The new tax law creates one reason for setting up a donor advised fund, but, as noted above, there are others.

If you think you might want to establish a DAF before the end of the year, you should begin this process as soon as possible – many DAF sponsors have tight deadline requirements (beginning as early as November in some cases) for those who want to establish DAFs and complete gifts before the end of the year.

About the Authors

Brad Bedingfield is counsel at Hemenway & Barnes LLP. Brad works extensively with nonprofit organizations, navigating tax, regulatory, and governance matters, guiding charities and other nonprofits through formation, reorganizations, mergers, affiliations, and dissolution, and advising on innovative use of charitable assets, including social impact bonds and other forms of impact investing. Email Brad

Andrea Richmond serves as a Family Office Advisor at Hemenway & Barnes. She concentrates her practice on a wide range of complex Family Office and Philanthropic Services relating to trust and estate planning, tax planning, investment management, philanthropic giving, nonprofit advising, and nonprofit administration. Email Andrea

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