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Despite economic uncertainty and an inflation rate that has stayed above pre-pandemic levels, Americans have continued to give, according to a new Fidelity Charitable giving report.
Last year, Fidelity Charitable, the independent nonprofit affiliated with Fidelity Investments, distributed $11.8 billion in donor-recommended grants, up more than half a billion dollars compared with 2022 and more than quadruple the amount distributed in 2014.
“2023 was our most impactful year yet, not only in terms of dollars granted, but also number of donors, grants made, and charities supported,” Amy Pirozzolo, head of Marketing at Fidelity Charitable, told RIA Intel in an email. “As donors turn toward smarter and more impactful philanthropic methods like donor-advised funds, impact to nonprofits continues to rise year over year.”
Donor-advised funds are a popular, tax-smart investment vehicle for philanthropically inclined investors. However, many advisors don’t know about them.
Rather than selling assets first and then donating the proceeds to charity, investors can donate or contribute the assets to a charitable account through a sponsoring organization like Fidelity Charitable. The organization then liquidates the assets and invests and manages the funds, which will grow tax-free. Donors are then able to allocate some or all of those funds to the charity or charities of their choice on an ongoing basis as long as there are funds in the account.
An often-unknown benefit for advisors is that donor-advised funds also allow advisors to actively manage charitable assets on behalf of their client and therefore bill on those assets, a benefit that is missed if their clients are directly donating to a charity. The minimum asset balance to participate in Fidelity Charitable’s charitable advisor program is $100,000.
Since 2014, assets in Fidelity Charitable accounts have seen more than $22 billion in tax-free growth that would not have existed with direct donations.
Last year, more than 322,000 donors recommended over 2.3 million individual grants to roughly 199,000 unique charities worldwide. According to the report, there were 11.8 grants donated on average per individual account, and the median account balance per individual was $21,000. Since 2014, the average number of grants per account has increased by 36 percent, with the average grant size growing to $4,625, according to the report.
Education, society benefit, human services, and religion were the top-supported sectors in terms of grant dollars last year, and 78 percent of grants went to charities that donors had previously supported.
Sixty-three percent of donor-recommended grants were designated to go “where they were most needed,” which allowed the charities to decide exactly how to use that money.
Donor-advised funds allow donors to contribute more funds than they originally put into their accounts, and the accounts’ continued growth allows for more consistent donations. This is helpful to charities because it provides a source of stability and consistency for nonprofits and enables them to plan for and respond to the unexpected, wrote Fidelity Charitable.
Pirozzolo puts down the increase in giving to the ability to donate assets in a tax-smart way that allows donors to ultimately give more as well as to the tax-free investment growth. Additionally, she says, the very nature of donor-advised funds makes giving easier for investors.
“Donor-advised funds allow individuals to effectively set aside funds for charitable giving separate from their ordinary expenses,” said Pirozzolo. “Since these funds have already been given away, they are available exclusively to respond to nonprofit and community needs, and donors can give in both a planned way and in the moment.”
Since its establishment in 1991, Fidelity Charitable donors have recommended grants totaling $84.5 billion in support of more than 406,000 unique charities.
