3 steps to making a philanthropic impact in volatile markets

BJ Goergen, Global Head, The Philanthropy Centre
Sarah Brody, Donor-Advised Fund Specialist
 

Charitable giving in the United States has grown considerably over the past 40 years. However, during economic recessions, we often see a decrease in philanthropic funds.

This year has been marked by inflation, headwinds from the pandemic and the conflict in Ukraine. These factors, along with social and environmental issues, are intensifying the need for charitable support across the country and the world. 

Foundations and nonprofits are preparing for the impacts these types of events will have on their organizations because historically when the economy has incurred challenges, it has taken several years for the philanthropic sector to recover. In the Chronicle of Philanthropy, Shannon McCracken, CEO of the Nonprofit Alliance, recently shared “The year’s end is such a critical fundraising period for nearly everyone. Some of these unknowns over the past two months have really put a pause on spending [for nonprofits] and caused everyone to go back and re-budget for different scenarios.”

Today, strategic and intentional donors can follow three steps to provide much-needed stability for the nonprofits they care most about while maximizing their charitable impacts.

First, evaluate your giving history 

When gifting resources are limited, it’s important to determine your giving goals and decide your top priorities.

Reflect on these questions:

1. What organizations do you want to continue to support?
2. Do you have the capacity to add new causes to your giving strategy?
3. Do you see the impact of your time or resources in the areas you care most about? 

Your answers can be helpful in solidifying your mission and ensuring you are supporting the organizations most significant to you—this may mean donating to fewer organizations, but making larger, multi-year gifts to those nonprofits. These types of gifts can provide nonprofits with the financial support and safety nets they need to maintain existing programming and plan for the future.

Strategize and develop a plan

Once you have decided which organizations you want to give to, research or reach out to discuss their needs. Nonprofits can be forced to decide between scaling back programs, changing expansion plans and potentially laying off employees. It’s imperative to understand their challenges and priorities for the future.

Key considerations to assess are:

1. How has the current economic state impacted the organization?
2. What are the most important initiatives for the organization, and where do they align with your interests?
3. Is the organization thinking creatively to plan for the future?

These questions will help you approach the final step in the process: finalizing how you will give.

Evaluate your balance sheet and give

Once you have established your strategic goals, it is time to determine which assets will best support your intentions. Exploring your entire balance sheet will allow you to both fund your giving plans and maximize the tax benefits you can receive in the process.

Ask your attorney and tax advisor for help evaluating the potential tax benefits of these strategies:

1. Gift long-term appreciated securities

Giving highly appreciated, long-term securities directly to a charity or charitable vehicle can be a tax-efficient way to support your philanthropy. You may be able to eliminate capital gains taxes on the unrealized appreciation and receive a deduction based on the fair market value of the gifted asset. 

While most asset class returns are negative year-to-date, many securities still have significant embedded gains on a multi-year basis.

Take it one step further: Amplify your philanthropic vision by applying a values-based lens to your donations. Are there holdings in your portfolio that do not align with your charitable mission? Tax-efficiently divest by donating these holdings to fund your philanthropy. We worked with one donor to give to cancer research and several healthcare nonprofits using funds from an appreciated position in a tobacco company.

2. Donate nontraditional and illiquid assets

Do you own long-term assets outside of your portfolio that have appreciated significantly? 

Some nonprofits and sophisticated donor-advised funds (DAFs) may accept complex assets as gifts, such as real estate, alternative investments or privately held business interests. Unlocking nontraditional areas of your balance sheet can help you achieve your philanthropy goals.

For example: We worked with a client’s family to facilitate the contribution of a hedge fund interest to their DAF. This strategy allowed the donors to receive a fair market value deduction for their gift and avoid realizing the capital gain. Since making this donation, the donors have used their DAF to benefit various nonprofits, including several in the education space, that were unlikely to directly take in a complex asset.

3. Harvest losses and donate cash

Consider whether there are positions in your portfolio that you can tax-loss harvest. By selling an investment at a loss, you can offset capital gains and income in the current year or future. While cash donations don’t offer the same strategic tax advantage of appreciated assets for “gifting the gain,” gifts to public charities and DAFs are deductible at fair market value up to 60% of a donor’s adjusted gross income (30% for gifts to private foundations).

We can help

In times of economic uncertainty, you can give more purpose and power to your giving with thoughtful planning. J.P. Morgan Private Bank is committed to helping you enhance your philanthropic impact. Ask your J.P. Morgan team for advice and guidance on how to get started.