By Cor Hoekstra, TIFIN Give
Americans are a generous people – in 2022, U.S. giving was almost half a trillion dollars, with about $320 million of that coming from individuals (National Philanthropic Trust). With the year-end giving season upon us, it also makes this a natural time for financial advisors and wealth managers to talk with clients about their giving plans.
Charitable giving spurs positive impact across many types of stakeholders. Of course, it is a benefit to society and the non-profits that receive funds. Charities and causes are also a connection point for like-minded individuals, building community and inspiring collective action. And for the benefactor, there can be benefits both rational (such as tax write-offs) and emotional (a sense of well-being.)
Financial giving is also, at its heart, a matter of personal finance. I believe that charitable giving is one of the untapped areas where financial advisors and employers can play a bigger role in years to come. I believe that Donor Advised Funds – DAFs – are a tool that can help make giving a part of individuals’ financial plans, just as 401ks and IRAs were the tools that created the link between individuals and employers/advisors with retirement planning.
Making Giving a Year-Round Activity with DAFs
While generosity is top of mind in December, I believe employers and advisory firms, as trusted financial experts, can take the first step towards helping clients and employees make giving a part of their overall plan by introducing them to DAFs. (Full disclosure: My firm, TIFIN Give, uses DAFs as a part of our philanthropy platform offered to employers and wealth management firms.)
For those unfamiliar with DAFs, a quick primer: DAFs are a special giving account that can be set up in the name of an individual or group. Like a 401k or Health Savings Account, a person can contribute funds for a specific future use – in this case, qualified donations to non-profit organizations. While in the account, funds can be invested, and positive returns will increase the amount that can eventually be given.
DAFs have been around for years and are well-established and regulated, but in the past were primarily used by the affluent who could hire financial specialists to set them up. Today, technology is making DAFs more turnkey and their features are appealing to a wide range of people:
- Donations are tax-deductible the year they are made to the DAF, even if the DAF doesn’t make the distribution to a non-profit that year.
- The donor manages the account and can decide when and where to give the money in the future.
- Contributions can grow with the market, much like retirement savings.
- Multiple people can contribute to a DAF, making it a good vehicle for family or group giving.
Thanks to these features, DAFs are a great way to make giving an everyday activity – users can set up automatic contributions with every paycheck, for example, and make grants when they want.
How DAFs Can Benefit Employers and Wealth Managers
By making DAFs available to employers and wealth firms, TIFIN Give is looking to make philanthropy more accessible. We envision a day when employers offer “charitable spending accounts” as an employee benefit, just as they do flexible spending accounts and retirement accounts. Employers can offer matches and automatic contributions as part of the benefits package, an attractive proposal for charitably-minded employees and a way to demonstrate and live a company’s social mission.
We know that many people view their employers as a source of trusted financial advice and are used to using employer offerings as the basis for their financial plans. Employer-sponsored DAFs can add giving to the financial toolkit employees enjoy.
Likewise, wealth management firms and advisors succeed when they can help their clients plan for the future. Adding philanthropy to their offering lets advisors deepen their relationships with clients about things that really matter to them and puts more assets in vehicles that a financial advisor can manage on behalf of their clients.
Expanding services to include giving is a way advisors can stand out and offer a more holistic approach in the short and long term. Giving is a part of a person’s legacy, and contributions can have an immediate impact on taxable income. Having visibility and influence on giving plans will only make an advisor’s role more important going forward.
Promoting Philanthropy Now and Every Day
Soon the holiday season will end, but it is an important time to step back and evaluate what really matters. As financial experts and influencers, we all can help educate people about the giving tools available to them and promote philanthropy as an integral part of financial planning.
I encourage you to spread the word about DAFs and start engaging with clients and employees about ways they can make their contributions more efficient and effective. And of course, if you’d like to learn more about TIFIN Give’s philanthropy platform, please contact me today!
