NEW YORK, August 5, 2021 — BNY Mellon Wealth Management released today their 2021 Annual Charitable Gift Report, which uncovered potential opportunities for donors to better realize financial and tax benefits when funding charitable gift annuities (CGAs); why nonprofit organizations should be prepared to navigate the financial risk of “underwater gifts”; and how charitable trusts remain a powerful but underutilized tool to help donors fulfill broader philanthropic goals.
Data for nonprofit organizations included in the Report revealed that over three quarters (84%) of donors with CGAs established in 2020 were funded with cash assets and only 16% funded with non-cash assets. Given the benefits of funding gift annuities with securities that have appreciated in value, this is a significant opportunity that donors are overlooking. They may be foregoing significant tax benefits by funding five- or six-figure gift annuities with cash.
A new development from the report demonstrated that more than half (56%) of the nonprofit organizations issuing gift annuities had at least one “underwater gift,” which can pose serious financial, regulatory and reputational risks if not managed proactively. Effective identification and management of current underwater gifts, as well as gifts that are projected to go underwater, is vital for nonprofits to manage the financial risks inherent in issuing gift annuities, to protect their reputations as responsible stewards, and to cultivate future gifts from their donors.
“The events of 2020 had a far-reaching financial impact on many nonprofit organizations tasked with meeting a greater demand for services and a decline in revenues due to COVID-related lockdowns,” commented Crystal Thompkins, Head of Philanthropic Solutions at BNY Mellon Wealth Management, where she leads and coordinates strategy for all of Wealth Management’s philanthropic services, including individual and family philanthropy, institutional endowments and foundations, planned giving and donor-advised fund services. “Many of these organizations also experienced a decline in new life income gift funding in 2020. Against this backdrop, we proactively worked with clients to rethink how they could realize income and tax benefits from charitable giving, along with helping nonprofit clients to manage risk in their portfolios.”
Donor Advised Fund Grants Rose Sharply in First Half of 2020
Donor advised funds (DAFs) continue to be an important part of the philanthropic landscape, with grants distributed through the BNY Mellon Charitable Gift Fund increasing by 85% over the prior year. March and April of 2020 saw an increase of 92% in the number of grants recommended by donors versus the same time period in 2019. Estimates indicate that grant disbursements from the largest DAFs for the first six months of 2020 are up close to 30% from the same period in 2019.
Thompkins added, “During times of economic uncertainty – when capacity for charitable giving may be limited – donors with DAFs are well positioned to provide critical funding to nonprofits when it’s most needed. In addition to offering a simple and flexible option for charitable giving, DAFs are also now being used in creative estate and tax planning strategies to promote legacy, family and next generation giving.”
Charitable Gift Annuities Spike in June of 2020
Giving during the first six months of the year was higher than the remainder of the year. CGAs specifically were significantly higher, with gifts in June outnumbering gifts in December for the first time in the seven-year history of this Report.
CGAs have remained a consistently popular way to give. For many nonprofits, it is a great way to create lifetime engagement with donors at all levels of support and can open the door for deeper conversations about other ways to make an impact with their giving.
Charitable Trust Amounts Experience an Increase in Funding
This year’s Report noted that charitable trusts saw an increase in funding amounts by over 20%, despite being funded in fewer numbers in recent years.
Charitable remainder trusts (CRTs), one of the most common types of charitable trusts, remain a powerful tool to help donors fulfill broader philanthropic goals and provide themselves with investment income. For example, business owners going through a liquidity event can use CRTs to strike the ideal balance between charitable intent, desire for ascertainable cash flow as well as interest in deferring capital gains on the sale of an asset.
Thompkins added, “Donors considering a charitable trust might be surprised to learn how well it fits into a long-term charitable tax and income strategy. There are a lot of creative ways donors can meet not just charitable but planning goals, too.”
Upcoming 2021 Philanthropic Solutions Events
Join Crystal Thompkins on Tuesday, August 24 as she leads a discussion with a panel of experts taking an in-depth look at the report findings and what the data reveals about current and future trends in giving. Find more details on BNY Mellon Wealth Management’s news and events site in mid-August.
The results of the study will be explored further at BNY Mellon Wealth Management’s 19th annual Planned Giving Conference, which takes place virtually on September 29 and 30, 2021. Hosted by BNY Mellon’s Planned Giving group and Thompkins, the event caters to an audience of charitable gift planning professionals, individuals on boards of nonprofit organizations and advisors working with nonprofit organizations. The event is expected to feature live keynote presentations, panel discussions and insights from industry experts on the current landscape and the future of philanthropy. Individuals interested in attending can check BNY Mellon Wealth Management’s news and events site for more details in early September.
About the 2021 Annual Charitable Gift Report
BNY Mellon Wealth Management’s 2021 Annual Charitable Gift Report assesses the fundraising landscape, levels of giving and donor behavior to provide insights, context and benchmarks. The report provides analytics and observations on charitable gift annuity and charitable remainder trust activity for more than 100 nonprofit organizations during calendar year 2020. This included educational, faith-based, social services/other, cultural and healthcare organizations.
About BNY Mellon Wealth Management
For more than two centuries, BNY Mellon Wealth Management has provided services to financially successful individuals and families, their family offices and business enterprises, planned giving programs, and endowments and foundations. It has $305 billion in total client assets, as of June 30, 2021, and an extensive network of offices in the U.S. and internationally. BNY Mellon Wealth Management, which delivers leading wealth advice across investments, banking, custody, and wealth and estate planning, conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. A division of Wealth Management, BNY Mellon Investor Solutions includes the firm’s institutional multi-asset solutions business. It has $31.6B in AUM/AUA as of June 30, 2021 and is penetrating the rapidly growing OCIO market. For more information, visit www.bnymellonwealth.com or follow us on Twitter @BNYMellonWealth.