Personal Finance

A Smart Tool for Charitable Giving

September 19, 2017
Donor-advised funds can help you meet your philanthropic goals.

Key Points

  • Donor-advised funds provide a convenient and efficient way to make charitable donations.
  • Charitable giving is on the rise in the U.S., with individuals leading the way.
  • The minimum donation for The T. Rowe Price Program for Charitable GivingSM is $10,000.

Giving has been on the rise in the U.S. In 2016, individuals, estates, corporations, and foundations contributed an estimated $390 billion to a wide range of charitable causes, according to data from the Giving USA Foundation.1 That’s a 2.7% increase over 2015. Donations have risen steadily since a dip in 2009 following the global financial crisis. (See “A Steady Climb in Philanthropy.”)

“Individual giving continued its remarkable role in American philanthropy. Giving by individuals grew at a higher rate than the other sources of giving, outpacing giving by foundations and by corporations,” states the 2017 Giving USA annual report.

A Steady Climb in Philanthropy

Charitable giving in the U.S. has been on the rise since 2009.

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Source: Giving USA 2017: The Annual Report on Philanthropy for the Year 2016. Researched and written by Indiana University Lilly Family School of Philanthropy. Sponsored by Giving USA Foundation, a public service initiative of The Giving Institute.

Individuals accounted for 72% of the giving in 2016, contributing $281.86 billion. This marked a 3.9% gain over the prior year for individual giving. Individuals are also increasingly choosing to give to charity through donor-advised funds. According to the National Philanthropic Trust, these funds had nearly $78 billion in assets in 2015, up from more than $57 billion in 2013, spread across more than 269,000 accounts.2

The role of donor-advised funds

Donor-advised funds provide individuals and corporations with a convenient and efficient way to make charitable donations. Donors can receive a tax deduction for their contribution to the fund in the year it is made and then make grant recommendations to qualified nonprofit organizations at any time.

Contributions to a donor-advised fund can be invested among various options, ranging from conservative strategies for those who want less volatility and expect to make imminent grants with those assets to more aggressive options for long-term growth, possibly enabling larger grants in the future. Assets in the account can grow tax-free until distributed.

All gifts are tax-deductible (up to IRS limits), and donors can make contributions with long-term appreciated securities, enabling them to deduct the full value of the shares without having to pay taxes on any capital gains. This is a particularly popular option for donors. A 2015 survey of new donors to The T. Rowe Price Program for Charitable GivingSM (Program)3, a donor-advised fund, found that nearly half opened an account to be able to donate securities.

“One of the most important benefits of donor-advised funds is their simplicity,” says Dr. John Brothers, president of the Program. “Individuals can recommend grants and manage their accounts online at any time, and they can easily select investments for their contributions.”

The Program, which has one of the lowest administrative fees among the largest national donor-advised funds, offers donors six different investment pools composed of T. Rowe Price mutual funds. (All investment pools are subject to market risk, including possible loss of principal.) Thanks to the generosity of its donors, from its founding in 2000 through the end of 2016, the Program distributed more than $125 million in grants to support nonprofit organizations. And during 2016, nearly 5,700 charitable organizations received almost 11,300 grants from the Program.4

Donor-advised fund misconceptions

While donor-advised funds have experienced rapid growth, demonstrated in part by the Program's assets under management of $253 million in 2016, some misconceptions about them have surfaced. “One of the biggest misconceptions is people think these funds are just for the wealthy,” Brothers says. “The fact is, in The T. Rowe Price Program for Charitable Giving, $10,000 is the minimum to open an account.”

“Another misconception is that these funds are mainly for older people who might want to distribute their assets as they near the end of life. But the funds are even more significant for younger people with smaller amounts of money who want to begin making charitable donations.”

Brothers also rejects the notion that donor-advised funds serve mainly as tax shelters. “They are no different than if you make direct contributions to charities,” he says. “They just allow you to take the tax deduction at the time you make the contribution and to spread out the period of time that you make distributions to charities.” In addition, donor-advised funds give donors flexibility about when their assets are distributed.

Looking ahead, Brothers is optimistic about the future of charitable giving and the role donor-advised funds play. “We have a philanthropic nerve in our DNA that somehow makes us want to help others, much more than any other country in the world,” he says. “Donor-advised funds are simply one more innovation that encourages charitable giving and also makes it easier to accomplish, particularly for people who have little experience in charitable giving.”

1 Giving USA 2017: The Annual Report on Philanthropy for the Year 2016 (current dollar values).

2 National Philanthropic Trust’s 2016 Donor-Advised Funds report.

3 The T. Rowe Price Program for Charitable Giving is an independent, nonprofit corporation and donor-advised fund founded by T. Rowe Price to assist individuals with planning and managing their charitable giving.

4 As of March 31, 2017.

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments or investment management. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.