Personal Finance

Donor Advised Funds: The Gift That Keeps Paying

Jacob Pruitt is the chairman of Fidelity Charitable, the nation’s largest donor-advised fund.

For someone new to donor directed funds, what do they do and how do they work? They are similar to an investment account. You put money or other assets in an account, and if you itemize, you can claim the tax deduction up front. You have the option of investing your money in a variety of mutual funds, including funds focused on environmental, social and governance (ESG) issues. Next, you identify an IRS-approved 501(c)(3) nonprofit organization that you want to support. Fidelity Charitable can accept a variety of assets, including public stocks, bonds and mutual funds, stocks of private companies and private equity firms, and restricted stocks. We will convert these assets into cash and place them in your charitable donation account. Even if you don’t itemize, donating an appreciated asset to a donor-advised fund provides a tax advantage because you can eliminate paying taxes on capital gains you’ve accrued over the years.

In this time of giving, what advice do you have for people who want to get the most out of their charity dollars, but are worried about the impact of inflation and a recession on their family budget? I would encourage them to keep giving if they can. The need for nonprofit organizations is there regardless of the economic environment. They are under pressure from a multitude of factors, including stock market volatility and inflation. In these tough times, people need to be even smarter about how they donate and make sure they do their homework. We ask our donors who usually contribute to keep giving, and they have. Year-to-date, we’ve seen approximately $4.8 billion in grants, an increase of approximately 11% over the same period last year. Our donors give money from the beginning and now they choose the causes they want to support. That’s the beauty of a donor-advised fund: Because you put money into the account when market conditions are positive, it becomes a reserve ready to draw even during economic downturns.

Where are donors directing their grants this year? We see dollars going into various categories. About $128 million in contributions were withdrawn from Fidelity Charitable to support Ukraine. Organizations that support food security certainly receive contributions from the fund, as well as educational, religious and health organizations.

Many people donate popular titles to donor-advised funds. Has the bear market caused these contributions to decline? Of course, the market has impacted donations of appreciated titles. What we find is that individuals choose the right assets to give away. They are rebalancing their portfolios and looking for different ways to continue contributing to their Fidelity giving account. And we always see cash donations as well.

Despite recent downturns, many early cryptocurrency investors are still sitting on big gains. Is this something they can bring to Fidelity Charitable? Yes. We have seen a huge increase in cryptocurrency contributions to Fidelity Charitable over the past year. Much of that was bitcoin, litecoin, and ethereum. When we receive cryptocurrency contributions, we immediately convert them to cash and add the money to donor accounts, where they can use it to make grants or allow it to continue to grow. I would encourage people who are still sitting on cryptocurrency earnings to consider contributing them to a donor-advised fund.

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