What Will Philanthropy Look Like in 2021? Six Predictions.

Now that Joe Biden is the president-elect, we can attempt to project what next year will look like for philanthropy. COVID-19, the quest for racial equity, the election season, and the devastating wildfires have marked 2020 as one of the most memorable years on record, and I am hopeful that 2021 will have a renewed focus on healing.

Here are six of my predictions for 2021 (the last one is the most important!):

1. Grantmakers will give more to general operating support than ever before.

We have already seen this overdue change coming.

This year, the Council on Foundations has asked foundations to pledge to loosen restrictions on their grantmaking requirements by offering unrestricted support and reducing reporting requirements, among other things. Nearly 800 foundations have signed.[1] And The Center for Effective Philanthropy (CEP) released these reports advocating for increased general operating support and fewer grant restrictions.[2][3]

Because of the feedback from nonprofit leaders, I am optimistic that foundations will continue to offer increased general operating support to nonprofits, even after there is no longer a COVID-19 crisis. It’s just better policy.

2. A large percentage of giving will remain local

More than ever in my lifetime, the people around me are struggling. When many of us see struggle, we step up. This may take the form of mutual aid – people informally banding together to make sure needs are met, such as a neighborhood meal exchange. Or it might look like creating a campaign on GoFundMe.

“People have raised more than $100 million for basic living expenses in tens of thousands of fundraisers on GoFundMe so far this year, the company said. That is up 150% from 2019 and more than any previous year. Last month, the company introduced a new category of fundraiser, for rent, food and monthly bills.”[4]

Giving locally might look like supporting your local food bank, church, or just giving a neighbor $50 for gas. Local giving can’t accurately be measured but I expect it will steadily increase through 2021, or until employment levels are restored.

3. Itemized deductions will be limited, which could lower people’s charitable giving.

President Biden is expected to call for a cap on itemized deductions of 28%, the same threshold put in place by President Obama. So, for each donation that a donor itemizes on his or her tax return, he or she will only receive a maximum benefit of 28 cents.[5]

This is not great news to donors who are motivated to give by charitable tax incentives. These tax challenges have led to a spike in Donor Advised Funds (DAFs), where donors may consider frontloading their DAFs prior to this change so they can make distributions as they desire, which brings us to point number four …

4. Donors will increase giving through Donor Advised Funds (DAFs)

Donor Advised Funds are accounts in which donors can deposit money, take an immediate tax benefit, and eventually donate the funds to charity. DAFs are the fastest-growing philanthropic vehicle with more than $121.42 billion in charitable assets and $23.42 billion donated through grants to nonprofits in 2018.[6] The number of DAFs jumped 55% from 2017 to 2018.[7]They are a way for the “every-(wo)man” to essentially have a foundation, without being exceptionally wealthy.

DAFs require a charitable sponsor who manages the account, like local foundations (such as The Community Foundation in Rochester, NY) or the nonprofit arms of financial service firms, such as Fidelity Charitable, which currently requires no minimum amount to start a DAF.[8]

DAFs are appealing to donors because the minimum to set one up is low or nonexistent, donors receive a tax benefit immediately when they put money into the fund, there are no mandates as to how much must be distributed (although the average payout rate is around 20%), they can be easily managed online, and the donor can remain anonymous if he or she chooses.

5. The COVID-19 vaccine will be widely available, but donors will not hustle to attend races and galas

Even as the COVID-19 vaccine rolls out, I expect many people to stick to the same routines they are following now, like wearing a mask when in public, ordering groceries online, and working from home. Fundraising events may very well continue to be virtual throughout 2021.

If you have ever worked with me, you know that I’m generally not a fan of large fundraising events (ever include staff time when calculating the ROI?) and I’m even less of a fan of making those large events virtual.

That said, this is the PERFECT opportunity to get in the habit of checking in with donors one-on-one. Have you or a board member ever called a donor, just to ask how they are doing? I tell the nonprofits I work with that close relationships with donors is key to fundraising success and sustainability. If you don’t really know your donors, this is the time! Don’t wait. I can show you how.

6. The nonprofit sector must work harder to increase trust

With the surge in giving because of COVID-19, nonprofits are in the spotlight. Trust in nonprofits skyrockets in times of crisis, but once the crisis has abated, that trust can tank. “Nonprofits cannot afford to be complacent about managing our reputation for trustworthiness, and we have to work constantly to cultivate and earn it.”[9]

According to the Independent Sector’s 2020 Health of the Nation report, 59% of the public trusts nonprofits to do what is right.[10]

That seems low to me.

How can we fix this? It’s up to each nonprofit to be clear about its mission, provide impact reports and stories of transformation to donors, and transparently communicate its financials. Those whom the nonprofit serves ought to be a part of decision-making whenever possible. An additional step in trust would be involving donors and grantmakers in solving problems, not just looking to them as funders.

Donors expect exceptional integrity of nonprofits and those who run or counsel them – perhaps even more integrity than they expect from for-profit counterparts. Let’s not let them down.

In conclusion

The events of 2020 have greatly impacted the nonprofit sector and I’m hopeful that 2021 will bring positive changes – changes that may not have taken place without the pandemic as catalyst. Although some changes are out of nonprofits’ control, there are several key things that nonprofits should be sure to do next year:

act in ways that increase trust in the sector; stay close to donors; and deepen their relationships with grantmakers, community foundations, and charitable sponsors.

How are you preparing your nonprofit for success in 2021?

[1] A Call to Action: Philanthropy's Commitment During COVID-19 | Council on Foundations (cof.org) [2] Ford_MYGOS_FNL.pdf (cep.org) [3] CEP_Foundations-Respond-to-Crisis_Toward-Greater-Flexibility-and-Responsiveness_2020-1.pdf [4] In Coronavirus Recession, the Out-of-Work Turn to GoFundMe - WSJ [5] 12 Tax Changes Joe Biden Wants to Make | The Motley Fool [6] The 2019 DAF Report | NPTrust [7] The 2019 DAF Report | NPTrust [8] Fidelity Charitable Donor-Advised Fund Official Site [9] To Keep People Giving in the Pandemic, Trust in Nonprofits Is Essential (philanthropy.com) [10] sector-health-report-101220.pdf (independentsector.org)