Year-End Giving: Expert Answers to Your Questions

Tifany Boyles, founder and president of Red Philanthropy, recently joined Bernstein’s Jennifer Ostberg to respond to questions we’re hearing from clients and their advisors heading into this giving season. Through Red, Tifany advises philanthropists on maximizing the impact of their charitable giving strategies. Jennifer oversees the Bernstein Philanthropy Institute and works closely with high-net-worth families and their professional advisors on a range of complex planning issues, including multigenerational wealth transfer, philanthropy, retirement planning, and asset allocation.     

Q: How should I approach charitable giving during periods of market volatility?

Tifany Boyles: To start, create a baseline budget for your giving. It should cover the organizations you know you’re going to support no matter how the market fares. Then you can create an aspirational budget, thinking about all the organizations you’d love to support if things financially turn your way. It’s a great way to create a pipeline of prospective partners and build those relationships in unknown times. Transparency with the nonprofit partners is key so those who are in the pipeline know that they are being considered without overpromising commitments.

Consider multiyear pledges as well. Pledges allow you as a donor to average out your gift over several years, so you can give more in flush years and pull back in leaner ones. Again, transparency and communication with the nonprofit partner are key. That way, they know over a period of three years, for example, that they can count on a certain minimum amount.

Jennifer Ostberg: We know donors are resilient. They have an impulse to be generous, which is not dampened by market volatility, or even by rising inflation, both of which we’ve experienced during 2022. What may be affected, however, is the amount that they’re giving, or how they want to structure that gift.

We suggest making charitable contributions in the most tax-efficient manner as possible. Many donors still hold stocks with built-in capital gains, despite the recent market volatility, so making contributions of appreciated stock is one way to help charities while also creating potential income tax benefits on a personal level (because many donors may receive a charitable income tax deduction, subject to their income and other limitations, and may avoid embedded gains).

Bunching multiple years’ worth of gifts into a single year is another smart year-end charitable giving strategy. This can increase the tax benefits of contributions, especially for donors who’ve had high income or gains this year.

We often advise clients to combine gifts into a donor-advised fund, or DAF. It’s an account that a donor creates at a qualified charity—such as a community foundation or a specialized DAF provider. The donor will make an irrevocable gift of cash or appreciated securities or other assets, while receiving an immediate charitable income tax deduction. The donor can then sell the assets without triggering capital gains tax and reinvest the proceeds in a tax-exempt diversified portfolio. The donor then has the flexibility to recommend grants at their discretion.

Q: In years when our budget for giving may be stretched, what are some other charitable giving strategies to support nonprofits beyond direct donations?

Tifany Boyles: Think about philanthropy holistically. For example, you might reach out to your favorite nonprofit partners and offer to make your gift a match this holiday season. Most nonprofit organizations do what’s called an annual appeal. If a donor can say they’re willing to match other donations up to a certain amount, that really helps the organization establish credibility among other funders. It can even inspire others to give more than they ordinarily would. I’ve seen matches for as little as five thousand dollars, to upwards of millions.

Recording a testimonial on why you support your favorite charity can also boost donations. An endorsement becomes an important asset they didn’t have to spend resources on, which is especially powerful in today’s market. Above all, call your nonprofit partner and ask for their ideas how you can help during this holiday season.

Q: I sit on the investment committee of a small community foundation. Our portfolio has taken a hit, and we’re debating whether this year’s distribution should be lower. Should we spend now to meet today’s urgent needs, or continue to save for tomorrow’s concerns?

Tifany Boyles: I am always a fan of a strategic plan. It should establish your foundation’s mission and help you understand how your organization’s financials reflect its ability to achieve stated goals. I typically don’t encourage donors to start from, “We have this much money, what are we going to do with it?” Instead, ask, “What are we hoping to accomplish, and how is the money going to help get us there?” That’s a conversation you want to have with your team and your board.

While the minimum giving standard is 5%, in the last two years during the pandemic, foundations gave at record levels, going above and beyond in many cases. If poverty alleviation is in your mission, then right now the need is everywhere. Inflation costs are high. There’s a war happening internationally, and countries are still reeling from the enormous levels of poverty due to COVID.

Consider your charitable giving strategies holistically and making commitments based on your mission with that baseline budget. We discussed having the aspirational budget and having the strategic plan that accounts for fluctuations. Ultimately this makes the practice of giving more rewarding because you become proactive in your decisions rather than reactive, and it helps you feel that you’re acting in accordance with your mission.

Jennifer Ostberg: To go back to the question of market volatility, another idea is to smooth out year-over-year volatility that may affect your foundation’s distributions. This method creates annual spending levels that are more predictable, making it easier for an investment committee or board to budget and plan. A smoothing policy like this is most often utilized with nonprofit endowments because they’re not subject to a minimum distribution requirement like a foundation. But it could still be appropriate for the furtherance of the foundation’s mission and consistent with the time horizon.

So, for example, a foundation may intend to withdraw either the greater of the minimum of the 5% required for grants and qualifying expenses, or 5% of the portfolio based on a rolling average of either the past three or five years of market values. You’re then able to distribute funds in a more predictable manner.

Q: With philanthropic families more geographically spread out than ever before, what are the key considerations for global families to consider when making gifts in the US?

Tifany Boyles: For donors who are giving cross border, the key is to ensure the organization is registered in the US as a 501(c)(3). That way, you won’t run afoul of mixing tax jurisdictions. If you come across an organization you really want to support but it’s not registered as a 501(c)(3), you might consider encouraging them to seek out what’s called a fiscal sponsor. You might also think of it as a parent organization or an umbrella organization. These may be community foundations, which essentially vet and approve international nonprofit organizations. Funders can give to the community foundation while designating it to the nonprofit that is not a 501(c)(3), which becomes essentially a program of the parent organization.

If you are a member of a multinational family who’s compelled to give, you can take advantage of resources that are established in your country while making sure you understand the tax benefits. The Charitable Aid Foundation (CAF) is one credible resource donors can turn to when seeking to identify organizations to support in a particular country.

Jennifer Ostberg: Families with a global footprint need to have reliable information and advice when giving across borders. There’s a lot of complexity involved. For families with charitable resources in and out of the United States, for example, an important consideration is which countries allow for charitable funds to cross outside their borders while still maintaining the country’s tax benefit for making the gift.

One of the biggest challenges facing multinational families is determining the structure of giving that best fits their situation. That’s why expert advice from advisors, from wealth managers to tax advisors, plays a critical role in helping to navigate international giving.

Q: As an individual donor, my charitable giving strategies tend to be spread out among many causes and organizations. How can I be more strategic and know that my donations are truly making a difference?

Tifany Boyles: First, identify your values. Take some time to write down all the things you believe in. Next, winnow it down to your top 10, and then exercise the discipline to bring it down to five. It’s really hard to go through your giving activity and measure it against 100 values, or even 10. But if you can measure it against five, it helps define your strategy.

My second piece of advice—and unfortunately this is less talked about—is to make the effort to know what has been done before. Don’t try to reinvent the wheel. Try to learn, what are the key principles in the field today? What are people saying funders should do? Then take the time to consider which of those ideas you agree or disagree with, and which ones correlate with your values. Ultimately, if you come to the table with funding, and you know your own values or your family’s values, it’s so much easier for the nonprofit to come up with potential partnership ideas.

Jennifer Ostberg: I agree. The most important first step for any philanthropic strategy is to identify your values and reflect on the catalyst and the motivations behind what’s inspiring your giving in the first place, and then linking those to causes that are most important to you. Discussing this with your partner or other family members can be a great way to begin to scope out your giving as a family.

Tifany Boyles: I recommend approaching philanthropy as seriously as you do your investment portfolio. Do the work of learning, then create your strategy and build it out, then carve out a percentage of your giving as flex funding, allowing you to take risks. Be experimental, respond to friendship and to serendipity, and be agile. As long as you’re learning from your flex fund, you’re doing an important service to the world and to the rest of your portfolio.

Q: We want to start involving our adult kids in our giving plans. What’s the best way to incorporate them in the discussion? What if they don’t want to give to the same organizations we do—how can we handle those potential conflicts?

Tifany Boyles: I think it’s important to remember that a strategic plan is a living document, and it’s meant to be revised often—biannually, if not quarterly. Adding adult children is a perfect example of evolving circumstances. I’d consider doing a few exercises with your children to map their values against yours and look for areas of overlap and areas of diversion. It’s okay to embrace both. It starts with listening and having a positive place to work from. You might want to focus exclusively on areas of overlap or create buckets of funding for different interest areas that various family members lead. Your advisors can help you determine what the best model is based on your tax situation and your family dynamics.

Jennifer Ostberg: On our end, we’ve seen that success starts with an open dialogue around values. A family should devote time and energy to understanding and articulating what the family stands for collectively. Each generation brings unique experiences, preferences, and giving approaches. In these cases, families can strive for alignment—rather than agreement—as alignment means agreeing on a common goal and accepting there may be more than one way to achieve success or impact. This approach leaves space for differences in philanthropic priorities and perspectives. Bernstein recently published a white paper on the Intersection of Philanthropy and Family Governance, which I would recommend to any family working through these dynamics in their philanthropic giving.