Making a difference in 2021

The first few months of every year are a perfect time for Americans to set goals, lock in their current year charitable deductions and maximize their philanthropic impact. This year, with Covid-19 still raging and total deaths in the United States expected to soon top 500,000, early giving makes even more sense. I encourage you to revisit financial and charitable plans to see how you or your clients may be able to make a bigger difference earlier this year.

For example, despite a turbulent start to the year, the S&P 500 is up roughly 16% over the past year, 46% over the past 2 years and almost doubled over the past 5 years. As such, many Americans are holding highly appreciated investments that could make a tax-smart gift to charity. Easy gifts to donate include shares of publicly traded stock, bonds, mutual funds and exchange traded funds which can be donated directly to charity or to a charitable vehicle like a donor-advised fund. Other non-cash assets, including restricted stock, shares in private businesses and real estate, can also make great gifts but it may take time to arrange for their transfer and sale. Making these gifts early this year at current valuations could help you to maximize both your 2021 charitable deduction and your philanthropic impact.  

As challenging as it has been for many of us to remain at home for so long, it has also been a great opportunity to have important planning conversations – both charitable and otherwise. With early planning and intention this year, I am hopeful that this year we can all make earlier and greater gifts to meet the needs of the moment. 

Extend your philanthropy for years to come

I recently spoke with my mom about her giving plans for the year, and we also discussed her desire to establish a charitable legacy. A few strategies that she had decided to adopt include:

1.      Involving the next generations now – Passing along a tradition of philanthropy to children and grandchildren can be a great way to connect with younger generations and learn about each other’s passions and interests. My mom set aside funds from her donor-advised fund last year and hosted a three-generation holiday zoom call during which each person nominated a charity to receive them. It was so successful that she plans to make this an annual tradition.

2.      Regularly reviewing charitable beneficiaries – It can make great sense to support charitable organizations beyond your lifetime by designating charities as beneficiaries of certain retirement accounts, trusts, and donor-advised funds. My mom has done so and has also committed to reviewing these instructions annually to ensure that they continue to reflect her wishes.

3.      Exploring ways to establish a longer-term legacy: Donors who want to extend their giving to charity beyond their lifetimes may want to establish a more formal legacy program, similar to the one offered by Schwab Charitable. Learn more here.

My mom says it best: “Family philanthropy has given our family a wonderful reason to gather virtually while staying home in recent months. I’m grateful to be able to use charitable giving as a way to discuss our family values while also making a difference.”

Guest Insights: @Home with Schwab Advisor Services

Schwab Charitable’s Fred Kaynor and Schwab’s legislative expert Mike Townsend recently had a virtual conversation from home about what to expect for charitable giving this year under a new administration and a narrowly divided Congress. Watch the full video for an outlook and insights on smart charitable giving strategies under current policy.

Fred: “So, Mike, with a narrowly divided Congress, one of the big questions is what does that mean for the new administration’s policy agenda?”

Mike: “Fred, I think in a narrowly divided Congress, the new president is going to have to find a middle ground and find areas where there can be compromises…”

Fred: “How does that translate into the tax policy and the corresponding impact to charitable giving?”

Mike: “I think when you’re thinking about 2021, in particular, around taxes, some of the common ground within the Democratic Party is around a small increase in the corporate tax rate, maybe taking that top individual tax rate back to 39.6%. Things like estate tax changes or changes to the taxation of capital gains and dividends, I think that would be much more challenging… One other thing I’d watch for going into next year is the retirement savings bill, one of the provisions in it would increase the limit for qualified charitable distributions, or QCDs, sometimes known as IRA charitable rollovers. So that’s something that I would watch, because at least in the initial proposal, it would take that limit from $100,000 a year to $130,000.”

Fred: “That’s all great insight. Even though it’s unclear whether the new administration will try to bring about changes to the tax environment and to the tax provisions associated with charitable giving, we know that today, a lot of our donors have highly concentrated positions of long-held appreciated non-cash assets. And, again, from a charitable giving perspective, those assets, at least some of them, may be very appealing to give to charity… You potentially avoid capital gains in the process… And, ultimately, that means up to 20% more or whatever you saved in the capital gains exposure, going toward the charity that you wish to support, which in this day and age, particularly in the time of COVID and recognizing how much nonprofits are struggling to stay operational is a tremendous benefit. You achieve maximum impact on the charities you choose to support, and you ultimately lower your tax bill in the process.”

Watch the full conversation

Record generosity in 2020

According to several reports, charitable giving increased in 2020 in response to the many difficulties the year presented. I can share what we heard from a donor named Dave and tell you that a lot of other donors expressed similar sentiments about their giving last year:

“The need within our country and around the world is greater than ever, and with the disruption to the economy, philanthropy is more important than ever. Quite a number of people who were living on the edge have now fallen. Basic needs have dramatically increased, so to help provide some relief we are giving more to our local food bank, church food pantry, and homeless shelters.”

At Schwab Charitable, donors supported charities and communities in record amounts. The dollars granted to charities increased 35% and the number of grants to charities rose 39%. See Schwab Charitable’s 2020 granting report here.