This charitable giving account is booming in popularity (and also avoiding a lot of taxes)

In mid-2017, the Institute for Policy Studies (IPS), a nonprofit progressive think tank, warned that a growing kind of charitable giving might be so popular because it’s really just a tax shelter. The issue centered around the potential abuse of donor advised funds (DAFs), an investment vehicle that allows people to earn an immediate tax break for contributing money to charity–without actually having given it to any charity.

Instead, contributions go into a separate fund so you can theoretically take a breath and strategize about how to spend it while it appreciates. DAFs are especially appealing to those with deep pockets because they accept non-cash assets like stock, company shares, and real estate, which lets users avoid capital gains hits.

IPS warned that DAF contributions now account for about over $20 billion, but only about 20% of that money ends up flowing back out to causes. (Others have made similarly low estimates.) A recent report from the National Philanthropic Trust (NPT) shows that trend may be shifting a bit, at least on a year-in, year-out level. NPT estimates that DAFs now hold about $110 billion in assets. In 2017, account holders contributed $29 billion to their funds while redistributing a combined $19 billion to nonprofits. Both are record highs.

You don’t need to be a millionaire to try it out (or take advantage) yourself. In fact, at least one place with a relatively cheap entry fee is seeing people act even more generously than the norm. Schwab Charitable sets its DAF account minimum at $5,000, and despite a substantial charitable tax law change in 2018, and unpredictable market losses at the end of the year, it saw DAF distributions grow. That’s important because, and NPT reports, individual participation is expanding quickly, while average account balances drop: Many new donors that aren’t super-rich appear to be entering the game.

All told, Schwab’s donors granted $2.2 billion to more than 86,000 charities last year, up 35% since 2017. The sheer number of those grants increased by over 30% as well to about 487,000 in total. Since its inception in 1999, the group claims to have distributed more than $10 billion, with at least $3 billion of that enabled by investment growth.

Kim Laughton, the president of Schwab Charitable, says it has over 50,000 accounts under management right now, a number that’s “up substantially” within the last two years. “If you take all the contributions we received and all the grants we’ve given out, we’ve given out to about 50% of what’s been [historically] contributed,” Laughton says. “So it does move and it’s meant to move. Most importantly, [this is] meant to increase the amount that people give.”

Laughton says that annual surveys show that 60% of Schwab clients say DAFs cause them to give more than they otherwise would. “So we’re trying to grow the pie and make it more strategic so that people can plan and be really thoughtful with their giving,” she adds.

In 2017, Schwab’s donors contributed heavily to progressive causes that seemed under threat as a result of the U.S. presidential election. That propelled Planned Parenthood from fourth place in 2016 to second overall in its rank of top-funded groups. The ACLU also cracked the top 5, displacing Campus Crusade for Christ. Schwab is still analyzing 2018 trends, but Laughton says the shifts appear to have somewhat stabilized. The top funded 2018 groups were Feeding America, Planned Parenthood, Doctors Without Borders, Salvation Army, and Campus Crusade for Christ. “There tends to be quite a bit of the support for various social causes . . . my guess is that they have continued to receive support because they continued to be perceived under threat,” she says.

President Donald Trump’s 2018 tax law changes effectively doubled the standardized deduction that people who choose not to itemize can take this year. As a result, the number of primarily middle-class Americans who contributed to charity was expected to drop because more than half of those itemizing contributions for tax breaks might choose the less complicated route. With an estimated 27 million people altering their behavior, according to recent estimate by the American Enterprise Institute, the loss in donations was projected on the low end to be $16 billion annually.

Neither that changeover nor the late-year stock market volatility appears to have hit the DAF world that hard. Or, at least, those at Schwab, who still gave heavily regardless. “There is some question as to how many taxpayers really understand how the changes are impacting them until they file their taxes, which will be in the next few months,” Laughton adds. “In 2018, we saw healthy giving. It doesn’t mean that that will continue as people better understand their tax situation, and certainly market corrections can be detrimental to giving when people have fewer investments and less wealth to give away.”

But for now, the boom continues. Whether those who may be leaving their piggybanks to collect dust at other institutions follow suit remains an open question.