Philanthropy And Pandemic - The View From Bank Of America Private Bank

Tom Burroughes Group Editor December 13, 2021

Philanthropy And Pandemic - The View From Bank Of America Private Bank

The COVID-19 crisis has shaped many sectors of wealth management and philanthropy is certainly one of them. This news service talks to one of the big private banking players in the US about its experiences and the changing behavior of charitable givers.

The final weeks of a year typically produce a flurry of commentary about philanthropy – it is the “giving season.” The past two years, it is fair to say, have been affected greatly by the pandemic and philanthropy has felt the impact. Demands for help have prompted larger and faster disbursements than hitherto. The focus for some giving his changed with immediate problems on people’s doorsteps. 

To delve into some recent trends, Family Wealth Report recently talked to Dianne Chipps Bailey, managing director and national philanthropic strategy executive, in the Philanthropic Solutions business of Bank of America Private Bank.

FWR: What have been the most striking trends you have seen behind the numbers in terms of where donations are going, the pace of donations, the levels of donations and the way that people have changed from pre-COVID giving habits? 
Bank of America has been tracking the charitable giving trends of affluent households for the past 15 years. Over that time, we have seen a consistently high percentage of individuals and families giving to nonprofit organizations. This has remained steady with roughly nine in 10 high net worth Americans giving to charity annually through both good and bad economic cycles, including the Great Recession and through the pandemic. 

One of the most striking findings coming out of the 2021 Bank of America Study of Philanthropy is the significant 48 per cent increase in the average amount given per household since our last study in 2018. This matches what we are hearing from clients, which is that not only is there a deep, abiding commitment to giving back, but also a strong desire and willingness to step up support for organizations meeting critical needs in times of crisis. 

We expect giving levels to remain high this year, as a reflection of the improving economy and the ongoing need in our communities.  

We saw notable shifts in the way people were giving in direct response to the pandemic and other societal issues that COVID-19 pushed to the forefront: 

-- Increased support for basic needs and local communities: Ninety per cent of donors who increased support for basic needs and healthcare directed those donations to organizations in their own communities. This focus on local neighbors is noteworthy given the global impact of COVID-19;
-- Increase in unrestricted gifts: Donors were more inclined to give organizations flexibility to meet priority needs by giving for general current use versus specifying where and how their donations must be used. Giving without restrictions is a central strategy in the movement toward trust-based philanthropy; and 
-- Increased giving to and interest in support of social and racial justice. One in five (22 per cent) affluent households supported social and racial justice causes in 2020. Nearly as many (19 per cent) said they want to know more, which signals potential future growth in giving to advance social and racial justice.

Can you explain what structures are becoming more popular and which perhaps are less in use (donor-advised funds, private foundations, other)? How have the discussions around possible tax hikes by the US government (estate tax, gift tax) affected structures and their use?
About 30 per cent of all 2021 study participants have used or are planning to use a giving vehicle of some sort. Among households with net worth between $5 and $20 million, nearly six in 10 currently have or are planning to establish a giving vehicle such as a donor-advised fund or private foundation. Generally, we are seeing growing use and interest in giving vehicles across the board, particularly among younger donors (aged 38 or younger) who are two and a half times more likely than older donors to have made a donation to a giving vehicle and are twice as likely to have a private foundation. 

We found that, since our last study, about twice as many people have or plan to add a specific charitable provision to their will. We see a similar increase in qualified charitable distributions from IRAs.

There are several reasons for the growth in giving vehicles. Top of the list for our Bank of America Private Bank clients is that people want to be much more intentional and disciplined about their giving. Giving vehicles help them do that. In general, we’re seeing demand for philanthropic planning and solutions across all of Bank of America’s businesses, including consumer, business and private banking. Many people are attracted to the benefits of donor-advised funds because they are accessible, offer a wide range of investment options including sustainable and impact investments and make it relatively easy to make contributions and distributions. Donor-advised funds also can serve as an alternative to a family foundation, for those who want to minimize administrative burdens. 

Potential tax law changes are driving some of the increased interest in giving vehicles. The implications of some of the proposed changes have encouraged many to finally get their estate plans in order. Some of the areas where we’re seeing the most activity include the use of qualified charitable distributions from IRAs and an acceleration in gifting of highly appreciated assets directly to qualifying nonprofit organizations. Taxes are an important consideration in how charitable gifts are structured and funded, but taxes are not a primary motivation for giving. Affluent American are motivated to give by their personal values and desired charitable impact.

One issue is the choice between giving to long-term, ongoing philanthropic causes and short-term projects with a target date to hit. The choice matters because it will affect what charitable money is invested in. Are you seeing a lot of discussion and debate about the pros and cons of these different ways of giving?
Time horizon is an important consideration for any investment strategy, and it has significant implications for how charitable assets are invested and charitable commitments are met. People give for very personal reasons, and where they direct their charitable gifts has everything to do with their values and goals, the legacy they want to create, the impact they want to make and extent to which they want to see that impact. Those aren’t easy questions. 

When we asked people about the biggest challenges they face when it comes to charitable giving, the top two answers were: (1) deciding what to donate to and (2) understanding how much they can afford to give. Much of the discussions we have about time horizon are about establishing the proper structures and/or controls to ensure philanthropic commitments can still be met if the donor is no longer present, if the leadership or mission of the organization change or if financial, social, or other circumstances evolve. The longer-term the goal, the more unknown are the risks and the greater the need for them to be managed. Many of our clients are accelerating their giving strategies and timelines to enjoy the benefits of “giving while living” and also to address the urgent challenges of our world. 

Are you seeing more focus on domestic US charities and causes or a more international pattern of giving? 
We definitely saw a greater focus on domestic charities and causes in direct response to the pandemic. Among those who increased giving to basic needs, 90 per cent gave to organizations in their local community; 35 per cent gave to organizations within the US but outside their local community; and only 5 per cent gave to international organizations outside the US. That said, geography has become less and less important to giving decisions for many reasons including that technology has made it possible for people to connect with one another around similar interests and causes anywhere in the world. 

As younger high net worth individuals come to the fore, how is this affecting what they give to and why? 
We see several emerging trends that will play out over time with the growing influence of younger high net worth individuals who are part of the rising generation of philanthropic leaders. 

One is a shift from organization-based giving to issues-focused giving. Our 2021 study found a greater percentage of younger donors (55 per cent) who base their giving decisions on the issues in which they most want to influence change as opposed to giving based on the organization itself (45 per cent). Historically, and among older donors, there has been a clear majority of people whose giving decisions are based primarily on the organization. That’s not to say that giving to address issues and giving to organizations are mutually exclusive. But it may mean that nonprofit organizations have to do a better job of communicating how they are addressing certain issues, such as climate change or social and racial justice, as part of their overall mission. It also means that individuals may need to think differently about priorities and how giving as a family engages the interests and participation of the whole family.

We also see younger people looking to influence change in every aspect of their lives – as donors, investors, consumers and employees. Traditional charitable giving is one piece of that, but not necessarily a separate piece. There is now a convergence of philanthropy and sustainable investing and conscious consumerism and social entrepreneurism, and younger people are setting the pace of innovation for positive change.

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