The Fruits of Helping Younger Clients Plan Their Charitable Giving

Consider bunching and long-term appreciated assets

Developing a thorough estate plan isn’t important only for Baby Boomers and Gen Xers. Millennials, who now make up nearly a quarter of the population in the United States, may prove to be more enthusiastic planners than their parents and grandparents, according to the 2022 Estate Planning Study: Millennial Estate Planning Continues in a Pandemic.

What’s an example of a giving technique that is well-suited for millennials?

As they build careers, switch jobs, and start businesses, millennials’ incomes may ebb and flow from year to year. This makes “bunching” or “bundling” through a Donor Advised Fund at a community foundation very useful. Because contributions to the Donor Advised Fund are eligible for an immediate tax deduction, your client can make donations into a Donor Advised Fund at a level that takes advantage of itemizing deductions during a high-income year, and then contribute less to the Donor Advised Fund in lower income years. We highly recommend that fundholders make grants from their fund each year to support their favorite nonprofits, even if they don’t contribute to their fund that particular year.

How does bunching help nonprofits as compared with outright gifts?

Certainly, your clients can organize their annual giving through a Donor Advised Fund and — using the Fund as an organizing tool and pass-through — recommend grants to nonprofits just as though they were making their contributions outright. This is the fastest way to get funds into the hands of the nonprofits that need them to fulfill their missions. Because the charitable income tax deduction is not currently available to taxpayers who do not itemize, however, your non-itemizing clients may have less incentive to give to nonprofits in the first place. Bunching is useful because it re-introduces the incentive. Consider the case of a client who has a high-income year and makes a large contribution to a Donor Advised Fund in that year and benefits from the charitable deduction because of itemization. Let’s assume that the client’s next two years are low income and the client does not itemize deductions and therefore has no tax incentive to support nonprofits. The bunching strategy in year one allows the client to support nonprofits from a Donor Advised Fund in year one, year two, and year three. Without the bunching strategy, the client might be inclined to give to nonprofits only in year one.

What does this mean for planning gifts to nonprofits?

Your millennial clients may be interested in setting up charitable gift vehicles earlier in their lives than some of your older clients. And because millennials tend to be better savers than their elders, it’s never too soon to discuss philanthropic intentions with your younger clients.

Does bunching work with long-term appreciated assets?

Yes! Although it may seem obvious to professionals in the financial world, it’s not always top of mind for your clients to remember to donate long-term appreciated assets to their Donor Advised Funds. This is especially true of millennial clients who only now might be reaching a point in their lives when they own stock or other assets that have gone up in value. Donating an appreciated asset is tax-efficient because the asset given to the Donor Advised Fund or other public nonprofit typically is deductible at the asset’s fair market value. The nonprofit, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support charitable causes than your client would have had if the client had sold the asset and given the proceeds to the nonprofit.

Does it work to give real estate?

Yes! Real estate is an excellent long-term asset to donate to a Donor Advised Fund at a community foundation like ours, especially now. In late 2021, buying a second home appeared to be a strengthening trend. While higher interest rates and inflation might dampen that trend in the short term, the ability to work from anywhere is a reality that’s unlikely to disappear. This means even your younger clients, not just retirees, may be buying and selling second homes and even rental properties. These clients could be good candidates to donate real estate to a Donor Advised Fund. As with gifts of other long-term appreciated assets, a client’s gift of real estate to a Donor Advised Fund at a community foundation avoids capital gains taxes and generates more money for charitable causes than selling the property first and donating the proceeds. 

Any fun facts here?

Millennials’ end-of-life planning preferences have departed from the previous generations’ traditions, according to the study, right down to the most popular songs played or performed at a memorial service. Sought-after titles now include Beyonce’s “I Was Here” in addition to Frank Sinatra’s “My Way.”