If you asked most people what would happen in 2022, the vast majority would not have been able to predict the financial rollercoaster that was 2022, or that charitable giving would stay strong. From 40-year highs in inflation and rising Treasury yield prices to volatility in the stock market, “uncertainty” might have been the word of the year. If 2022 brought fresh humility, then we should certainly use it when setting expectations for 2023.
Despite the volatility of 2022, Charityvest (opens in a new tab) saw its highest volume of Giving Tuesday donations forever, against some predictions of weakness in the charitable giving market. For purpose givers—that is, people for whom charitable giving is a significant financial and personal priority by percentage of income or assets—we believe giving increased this year for two reasons.
First, determined donors consider giving an expression of deep values and partnering, or want to partner, with charities to make a real difference. In a year when charities have deeper needs due to inflationary pressures, what economists call a “substitution effect” occurs. Donations are perceived as more valuable, so larger donations are produced.
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Second, donors still want to be tax smart. With salaries still strong and stock prices still quite appreciative over the past five-year period, the opportunity for tax savings along with charitable donations remained significant. No matter what the volatility of the year looks like, donors make plans to reduce the tax bill for the year.
Looking ahead to 2023, what does this imply? Taxes are going nowhere, inflation will slow their growth but continue to put pressure on nonprofit budgets, and a new bipartisan Congress is less likely to pass any sweeping policy changes. Most importantly, a real possibility of a recession continues to loom. With all this in mind, here are my top predictions for the top giving trends in 2023.
1. Asset delivery will increase when equity markets recover.
At some point, stock markets will stabilize and start to rise once uncertainty peaks. If this happens in 2023, it is likely to happen, stock prices will appreciate more and more. Donating assets in lieu of cash has huge tax benefits. Awareness of this among consumers and financial advisers is at an all time high and growing. As the market recovers, 2023 may be a record year for asset delivery, especially stocks.
2. Trust-based philanthropy will achieve widespread adoption.
Philanthropist MacKenzie Scott has catalyzed a great deal of awareness and acceptance of “trust-based philanthropy” with her unlimited donations to thousands of non-profit organizations. (opens in a new tab) now totaling more than $14 billion. Trust-based giving is about building funder-recipient relationships that are more equitable in power and trust nonprofit executives to execute with excellence and transparency.
Oversimplifying, it means that top donors donate to charities with fewer strings attached. Beyond billionaires like Scott, we will start to see foundations, large DAFs, and even mid-sized daily donors in 2023 begin to make larger and unrestricted (though potentially fewer) grants to charities than they already do.
3. Acceleration in legacy donations.
The largest generation in history, the Baby Boomers, are aging, and legacy planning is at the forefront of many families, especially wealthy ones. This will only increase in 2023.
With an estimated $30 billion (opens in a new tab) expected to be passed down from Boomers to Generation X and Millennials over the next 30 years, we expect estate/inheritance planning related giving to accelerate in 2023.
4. Collective donations will continue their rise.
Disconnection and isolation are the problems of our time, especially post-COVID. Many people are looking for meaningful communities, especially where they can express shared values with others. Giving is an expression of values and can unite people around something collectively “greater”.
As technology makes it more and more seamless, crowdfunding is on the rise. Collective giving can take many forms. From collaborative funds where donors pool their giving power to maximize influence and impact, to giving circles where donors democratize decision-making, collective philanthropy will continue to increase its role in giving.
5. Counselors will begin to differentiate themselves in their ability to offer donation counseling and services.
As more and more robo-advisor tools emerge and Boomers retire, financial advisors are increasingly trying to differentiate their value from alternatives to win new, young clients.
One area of value-added service is philanthropy. Some advisors seek to form connections with clients around their life legacy and aim to help their clients make an impact as part of their financial goals. It is one way that advisors can differentiate themselves from automated advisors and direct investment managers. More and more advisors will integrate philanthropic planning tools and knowledge into their practice. This will continue to influence the landscape of how giving occurs between donors and charities.
As mentioned, no one knows exactly what to expect from the economy or the markets. However, these are all trends that we have seen grow in recent years, despite the volatility. Should 2023 prove to be one of less choppy waters, we will only see these trends accelerate and a changing philanthropic landscape emerge.
This article was written by and presents the views of our contributing advisor, not the Kiplinger editorial team. You can check the advisors’ records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).