This is a great time of year to talk with clients about how to use their donor-advised fund for year-end giving. Charitable donations come with strategic tax benefits, but there’s something far more meaningful behind the heart of why people choose to give.
As a matter of fact, we believe the heart of charitable giving is key. Donors want to make the most of tax benefits, but recent studies show that tax incentives are a much smaller motivation than they once were. Initially, when tax benefits decrease, donors also decrease how much they give. But studies also discovered another interesting trend in donors – overall, they return to the original amount that they used to give.
That confirms something important about the reason behind giving – donors genuinely care about the causes they financially support, and tax benefits aren’t the main reason for year-end donations.
That’s not to say that the timing isn’t significant. All donations made by December 31st are tax deductible for the current year, and over 30% of charitable gifts are made in the month of December. But there are a few reasons this may be the case: generosity of the holiday spirit, tax incentives, the momentum of GivingTuesday, or all the above. Whether it’s one or all of the above, there’s no doubt it feels exceptionally good to give this time of year.
Right in time for those who want to make charitable gifts at the end of the year is GivingTuesday. If you haven’t heard about GivingTuesday, it’s a day the world comes together to celebrate giving.
There are a couple reasons to align your client’s year-end giving plans with GivingTuesday. It’s always the Tuesday after Thanksgiving, which ensures plenty of time for charitable organizations to receive funds before the end of the year. Another, more meaningful reason, is that the topic of philanthropy is a unique way for financial advisors to build deeper relationships with their clients over holidays. Engage in discussions about the causes your clients care about most and help them decide which organizations they want their donor-advised fund to support.
Grants can be made on GivingTuesday or closer to the end of the year if a donor prefers. Contributions made to a donor-advised fund by December 31st offer tax benefits for the current year, but some assets take longer to process than others. That means the sooner a donor recommends grants, the sooner charities receive the funds. This is important if donors want charities to get the funds before the end of the year.
To be sure grant recommendations are received before the end of the year, check the deadlines of the donor-advised fund. It’s also a good idea to check your client’s donor-advised fund balance to make sure they have the funds available in their account to make the contribution they have in mind. This will help avoid any unexpected issues when they’re ready to grant the funds.
We know it’s important for advisors to help their clients get the most out of year-end giving, and while that certainly includes tax benefits, it also means finding ways to donate to causes they find especially meaningful. We’re here to connect you to those causes and help you navigate the best giving options for your clients’ unique situations. If you have any questions about donor-advised funds or charitable giving, contact us.
