Keeping an Eye on the Trends in Philanthropy

The non-profit world continues to be integrated into the fabric of an American culture and business environment but faces a bit of unknown future. Too much duplication of services and blending between for-profit and non-profit exist. The philanthropy sector is consistently overlooked but employs over 12.3 Million people (as of 2016). New ways of philanthropy, non-profit management, and administration or technology exist to make giving flexible, fast, and easier online!

Non-profits employ roughly 10% of all workers in America and have contributed to job growth over the last decade. During this time, nonprofits outpaced for-profit job growth by almost 4 to 1.

What does this mean for the sector and philanthropy specifically?  As the sector continues to grow and mature, below are some trends to keep an eye on and consider.

Increase or decrease in giving?

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Charitable giving in 2017 continued its upward trend as an estimated $410 Billion was given away to charities of which 70% was donated by individuals. For the third consecutive year, charitable giving reached record highs. In the 1990’s, giving represented roughly 1.9% of GDP but since 2000, we’ve seen it grow to 2.1% of GDP. How can we continue to move the needle beyond 2.1% of GDP? In the mid and late 1990’s DAFs started to become more mainstream and large financial institutions started working more intimately to include charitable planning to democratize philanthropy for more modest donors. DAFs made giving feel like a charitable savings account and it was or is still easier and on-line. It allowed donors to give more away by gifting appreciated assets more regularly. In the early 2000’s it was a lot more frequent to see paper stock certificates being contributed and now. It’s very rare.

The 2018 giving numbers aren’t yet out by Giving USA and we are still waiting to see the final numbers. They are scheduled to be released on June 18, 2019.

The 2018 year-end giving season was unique for many reasons. It was impacted by the market slump in December when more donors were giving cash because investment portfolios were down, and they had fewer appreciated assets. The market has surged since January 2019 and continues to look up which is a good early indicator we should see an increase in giving again in 2019.

In many cases, charities, community foundations, and DAF sponsors still had record contributions and there is an overall sense that contributions increased. It is still too early to gauge the impact of the Tax Cut and Jobs Act reports, but some early reports from Inside Philanthropy and others, suggest that giving was up. Generally, giving is more correlated to the stock market and M&A activity than to taxes.

With that said, there are still many Endowments and Foundations that are concerned about the future GDP growth and market trends due to the extended bull market we’ve experienced since the recession of 2009. How does this impact giving and what ahead?

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The reality is that we are in the midst of the largest transfer of wealth in the history of the world. More wealth will transfer among generations over the coming 20-30 years than ever before and it’s happening now! This will, in turn, mean more money continuing to pour into philanthropy and charitable organizations at unprecedented levels. An important and growing aspect for fundraisers will be managing the shift from gifts at death to counseling donors to give during their lifetimes in order to be more tax efficient.

The Philanthropy Outlook Report has provided us with a view into the next couple years of giving. The report’s findings expect in 2019 and 2020, “total giving is expected to be higher than the historical 10-year, 25-year, and 40-year annualized average rates of growth.” Since giving is so highly correlated to the growth of the S&P Index, we still need market gains and robust GDP growth to feel comfortable with those predictions.

DAF annual contributions now represent 10% of the total $286 Billion (70% of the total $410 Billion) given away by individuals. Contributions to DAFs in 2017 totaled $29.23 Billion. DAFs will continue to play an important role in planned giving and maximizing impact. RenPSG specifically has seen an increase in financial services and non-profits adding branded DAF solutions to their menu of charitable planning tools in order to capture some of this growth and provide their clients with the fastest growing and most popular charitable strategy and tool.

Future changes to laws governing charitable giving

It’s still early in the year but we have seen two bills (HR 651 and HR 1260) proposed by Reps. Chris Smith, Henry Cuellar, and Danny Davis that support a universal charitable giving deduction for all taxpayers. This would allow all donors to receive a charitable deduction for their gifts to charity even if they don’t itemize and still take the standard deduction. The Alliance for Charitable Reform (ACR) has been an ongoing organizer and advocate for this work and you can stay updated on these bills by visiting their website. ACR also hosted its annual breakfast on March 12 where House Ways and Means staffers discussed these bills and the potential for other tax changes that may impact the philanthropy sector. ACR is a project of the The Philanthropy Roundtable’s work.

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A universal deduction could have a huge impact on giving and further democratize philanthropy. Many had thought that the 2018 tax law changes would decrease overall private giving and limit the ability for nonprofits to continue to grow and deliver on services. A universal charitable deduction would eliminate those concerns and allow more donors to give when asked. Some early estimates on 2018 giving have shown a decrease in smaller gifts from middle- and lower-income donors but larger gifts from high-net-worth and ultra-high-net-worth donors. If one of these proposed bills is passed into law (and it’s a big if), we could see an immediate uptick in giving from smaller donors. The down side is that those donors may become less thoughtful and structured with their giving. Bunching as a charitable planning strategy has forced more middle-class donors to think about their giving in a more wholistic and structured way.  Cash is not king and it’s always better to give appreciated assets like securities in kind.

It’s important for fundraisers to think of themselves as the first conversation in creating philanthropic impact by helping donors give in a tax-efficient way. Always discuss the donor’s mission, intent and values concerning their philanthropic legacy before you consider timing and assets to be donated. Then you are ready to determine the most appropriate charitable vehicle.  (DAF, PF, CRT, CLT, etc.).

Advisor and Donor Education

Over the past 15 years, the non-profit community and DAF providers have made a large push to educate wealth planners, accountants, attorneys and other professionals about the importance of philanthropic planning. This will continue to be an important trend to unlock more capital for the philanthropic marketplace. We still have work to do based on many findings including the most recent US Trust study on Ultra-High Net Worth philanthropy.

The biggest data point from the study for professional advisors and fundraisers to consider is the fact that only 49% of High Net Worth donors say they have a charitable plan. The majority of donors DO NOT! Together, we must work as allied professionals to design plans  to help these donors create giving and granting making strategies.

Impact Philanthropy

Impact, Impact, and more Impact. Impact has become such a buzz word in philanthropy and I think we need to think about it in three buckets.

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The first is the impact we make by doing proper advanced charitable planning to unlock more assets that would otherwise go to the IRS and Uncle Sam. Many fundraisers understand this but are hesitant to practice it (and as noted above we still have work to do with other planners in the space). As part of this massive transfer of wealth, charitable planning should continue to be a larger part of the financial planning conversation. Most, if not all wealth planners will need to have a fundamental knowledge of how to help clients focus and structure their philanthropy for greater impact now and later through grantmaking.

The second and most talked about impact trend is impact investing. There are large amounts of money moving into investment vehicles that account for ESG trends. RenPSG recently published a blog examining Impact Investing. There, you can learn more about the trends and how impact investing is shaping philanthropy.

Thirdly is Impact Grantmaking. This age-old conversation about how to make the most out of your philanthropic dollars continues to be spirited. How you track your impact and what charities you support will always be a question we are trying to best answer. Organizations like Candid and CharityNavigator are a great start but other measurements are needed. For-Profit Philanthropic Advisors are popping up in major wealth centers to help donors create a strategy and structure. Another trend we are seeing among larger grantmakers is bringing together a collaborative of donors to support a single issue or cause to really drive meaningful, long-term change. This collaboration trend will continue and will create outsized impact if done right. 

Complex and Illiquid Assets

RenPSG has continued to accept and work with more donors who want to give illiquid assets. You can read more about this by reading our blogs about complex assets. We’ve seen more S-Corp and Real-Estate transactions as of late, but as the market shifts we could see more crypto-currencies or tangible personal property (like artwork) become a trend again.

Rage Philanthropy

As the 2020 presidential election nears, we are likely to continue to see a type of rage philanthropy from individual donors. Giving to organizations because of a political tilting stance will continue as the country remains very divided on certain social and community issues. Philanthropy has always been a way for individuals to express their personal beliefs on an issue, especially if the government funding is pulled away from these charities and organizations. I believe the nonprofit space will continue to be asked to provide the safety-net, especially when the government is reducing federal funding for these organizations. 

Advice for 2019 and summary

Overall, philanthropy remains strong and we should expect continued growth in giving, especially for larger donors and families who are thinking about long-term wealth transfer strategies. I also believe smaller donors will, for the first time, think more strategically about their giving and take into account strategies (like bunching to a DAF) that afford them time to develop a philanthropic plan. We as planners and our role at RenPSG is to bring all the professionals together to do what’s in the best of the interest of the donor and their family. It will be important for other allied professionals to build a philanthropic table separate from the business or ‘other tables’ the family has already ‘set.’ Charitable giving is part of the American soul and fabric of our communities. RenPSG works constantly to amplify giving by providing technology enabled gift administration services as well as consulting on advanced charitable strategies.