By Laura Saunders

American taxpayers are pouring money into charitable-giving accounts before year-end, prompted by rising markets and fears that a tax overhaul could trim the popular strategy of donation deductions.

At Schwab Charitable, the giving-fund associated with Charles Schwab Corp., donors put more than $693 million into new and existing giving accounts between Thanksgiving and Dec. 18, a 20% increase over the same period in 2015. Spokespeople for Vanguard Charitable, Fidelity Charitable, and National Philanthropic Trust said donations to their giving funds have recently jumped by double- or triple-digit percentages compared with last year, although they declined to provide dollar amounts.

The biggest drivers lately are proposals by President-elect Donald Trump and Republicans in Congress to limit the value of charitable deductions, either by lowering tax rates or cutting the deductible amount. In addition, markets rose to highs recently, and there are tax benefits for donating appreciated assets rather than cash.

There's still time for donors to open or add to giving funds for 2016.

This year's rush further boosts the impressive growth of individual giving accounts, which have become an alternative to private foundations for the wealthy and a favored vehicle for the affluent.

During the five years ended in 2015, annual contributions to such funds more than doubled, to $22.4 billion from $10.4 billion. Total assets more than doubled as well, to $78.6 billion from $38.2 billion, according to the latest data compiled by the National Philanthropic Trust.

The number of people with giving accounts, which are often called donor-advised funds, now exceeds 270,000. At Vanguard Charitable, new accounts for the four weeks ended Dec. 16 increased to 600 this year from 330 last year.

These funds' popularity stems from their flexibility and tax advantages, which allow donors to contribute assets and deduct the gift right away while designating charitable recipients much later. Meanwhile, the account assets can be invested and grow tax-free.

Here's an example. Say Mary usually gives away about $15,000 a year, and she has stock worth $45,000 that she acquired for $10,000 and has held for more than a year. She's worried both that the stock will drop and that tax changes next year could lower her deduction's value.

Rather than writing checks to her favorite causes this year, Mary contributes the stock to a donor-advised fund. She gets a deduction for the full $45,000 for 2016 and bypasses capital-gains tax on the stock's growth.

Then the sponsor (such asSchwab) immediately sells Mary's stock, tax-free, and funds her giving account with the $45,000. If she wants to give, say, $3,000 to a qualified nonprofit such as her church or college, she asks the sponsor to make a grant, and it typically does -- taking care of all paperwork. Meanwhile, the remainder is invested as she directs in a menu of mutual funds, awaiting her decisions about whom to give to and how much.

Result: Mary has made a tax-efficient donation of stock and gotten a full deduction this year, no matter what happens to the market or the tax code next year. Meanwhile, she doesn't have to parcel out three years' worth of donations until she wants to.

The drawback is she can't withdraw the donated funds should she want the money back.

Scott Michel, a tax lawyer in Washington, says he recently tripled his gift to his donor-advised fund ahead of possible tax changes and doesn't see much downside.

"Even if the charitable deduction maintains its value in the future, I've simply accelerated my giving," he says.

Donor-advised funds don't offer all the benefits of a private foundation, such as the ability to hire a relative. But even the very wealthy are embracing them. Schwab has accounts as large as $900 million and has made recent grants as large as $10 million, according to a spokeswoman.

Where do funds in giving accounts go? At Vanguard last year, 63% of grants were to groups that were either educational (29%), for human services (21%) or religious (13%), while giving to historical groups totaled 1%.

Would-be donors can still fund an account with cash or securities this year, although it's likely too late to contribute some nontraded assets like real estate. Besides the "national" groups such as Vanguard, Fidelity and Schwab, many community foundations and some religious or cultural groups offer these accounts.

Pay attention to terms. Fidelity and Schwab have minimum initial contributions of $5,000 and allow minimum grants of $50, while at Vanguard the minimums are $25,000 and $500, respectively. The administrative fee is 0.6% of assets annually at all three, plus investment-fund fees. Fees typically fall as assets rise.

Write to Laura Saunders at laura.saunders@wsj.com

(END) Dow Jones Newswires

December 23, 2016 08:14 ET (13:14 GMT)

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