We can expect to see a few key trends in charitable giving by affluent individuals in 2023. These include asset-giving, trust-based philanthropy and tax-smart donations.
These trends are driven by changes in the economy and trust in institutions. But they’re not necessarily a sign of a decline in giving. Equity markets have finally recovered - a notable improvement over the past year - but there are still lingering concerns about a recession. This is especially true given the aggressive rate hikes by the Federal Reserve. The bottom line is that stock prices will likely continue to rise in 2023. Despite recent market volatility, donating appreciated securities and real estate is an excellent tax strategy for reducing taxable capital gains and providing significant charitable deductions. Affluent individuals can also donate complex assets such as long-term appreciated private company C- or S-corp stock, private equity partnership interests, or Bitcoin and other cryptocurrencies to a donor-advised fund (DAF). This allows donors to receive significant tax benefits while making a large, impactful gift to their favorite charities. The process of donating illiquid assets can be daunting. It’s important to consult with a seasoned financial, charitable, and tax advisor when considering giving these assets. Donor-advised funds are a great option because they ensure a market for your assets and can help you realize significant tax benefits while making an impactful charitable gift. Foundations are beginning to take trust-based practices seriously to address the power imbalances between funders and nonprofit partners. Using this approach, funders are building relationships that put their values into practice. However, they must also be mindful of how these changes will impact their legal and fiduciary obligations. The law and taxation of charitable contributions and nonprofit operations are complex, and funders must ensure that they comply with these requirements if they adopt trust-based grantmaking practices. Moreover, trust-based philanthropy is rooted in equity values, and funders must apply these principles if they want to make this a sustainable approach. This requires them to recognize and embrace their own biases and those of the organizations they support. For example, they should understand how their own racial biases and privileges influence their decision-making processes. It also means taking the time to ask their grantees about how they are advancing equity in the communities where they work. The decline in charitable giving reflects a dropoff in tax benefits, especially for those who itemize deductions on their income taxes. Nevertheless, donors are still trying to find ways to lower their year-end tax bill and make donations to charities. Households with higher income and wealth are more generous. The proportion of households donating in the top-income group is 27 percentage points more than the lowest-income group, and they give 16 times more. Donor-Advised Funds (DAFs) are a tax-smart way for high-net-worth individuals to donate appreciated assets, such as stocks and mutual funds, with the added benefit of claiming a federal income tax deduction in the year the donation is made. We’ll continue to see the rise of trust-based philanthropy in 2023 as major donors and large DAFs move to give unrestricted donations to charities they know and trust. This will help to strengthen the long-term relationships between funders and nonprofits and increase their capacity to solve tough problems. Affluent individuals are known for their social relationships and generosity. They give to a wide range of charities and are often willing to invest their wealth in the cause of social justice. Some researchers also found that those who perceived themselves as lower on a ladder scale would give more in a trust game where they had to contribute to another person’s donation. This suggests that subjective wealth may predict generosity, even in a world where people’s wealth is shifting. The relationship between wealth and generosity is not always consistent, however. One study found that those who perceived themselves as poorer gave more in a hypothetical donation task than those who felt richer. The wealthiest Americans donate only 1.3 percent of their income, while the poorest donate 3.2 percent. While this is a small percentage, it is a significant difference.
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Ian Mitchell King |