Five steps to more strategic, effective philanthropic giving
A deliberate, organized approach helps you give back with more impact
If you’re like most donors, your decisions about which charities to support and how much to donate to each of them are driven by both rational and emotional considerations.
“As we work with clients to create and implement their plans for philanthropy, we see that their reasons for giving come as much from the heart, as from the head,” says Katherine M. Sheehan, J.D., Director & Senior Trust Officer at Boston Private. Often, she says, a substantial gift is driven by an emotional experience -- such as when a family member becomes ill or a close friend needs support during a particularly difficult time – rather than by the need to reduce income or estate taxes.
Recent research1 supports Sheehan’s conclusion: The personal reasons people give to charity far outweigh their desire for a tax break. When asked about their top reasons for making charitable donations:
- 54% of wealthy households said they gave because they believed in the organization’s mission
- 42% gave because they thought their gift would make a difference
- 32% gave to experience personal satisfaction, enjoyment, or fulfillment
Only 17% of the study’s wealthy participants said they were “always motivated” by tax benefits. 51% said tax benefits “sometimes motivated” them to give.
The benefits of a more structured approach
The only problem in “giving with your heart,” Sheehan says, is that it can lead to a somewhat haphazard approach to philanthropy. “Charities that send volumes of letters or emails may get more of your attention, and more of your charitable dollars. Those that spend less on marketing, but actually may be more effective, may get a smaller part of your philanthropic budget,” she says.
That’s why we recommend a more structured approach that balances the emotional side of giving with a more rational evaluation of the charities you select and the results they deliver. “This is the best way to assure that your donation will have the impact you desire,” concludes Sheehan.
The approach we take typically follows the five steps summarized below. But Sheehan also stresses the importance of bringing the full team of professionals together. “Your Boston Private team will work with your team of estate and tax planning professionals to help you increase the effectiveness of your philanthropic giving decisions.”
Five steps to increase the impact of your gifts
1. Define your values and reasons for giving.
Think about the causes that are most important to you. Are they global or local? Are they religious, tradition, or experience-based? Are you passionate about women’s issues, animal rights, the environment, social justice, education, or the arts? Do your current volunteer efforts suggest what’s truly important to you?
Having a focus for your philanthropy, based on your personal and family values and the causes you are passionate about will help guide your giving decisions. You can also include your children in the process, if you intend to for them to be a part of and carry on your philanthropic legacy.
2. Create or refine your mission or goal statement.
Once you have a clear picture of how you want to make a difference, consider creating a brief written mission or goal statement to guide your giving decisions. It may be as simple as “support the welfare of animals,” “help homeless women and children,” or “fund research to cure Alzheimer’s.”
If your statement includes several goals, try not to spread yourself too thin. Focusing your attention on a few key causes can have a greater and more lasting impact.
3. Research the best ways to address each area of need.
After defining your own charitable mission, do some research to see which organizations fit that mission and support the causes you’ve identified. Make sure that any charity you select is a registered 501(c)(3) tax-exempt organization, so your donation is deductible for tax purposes.
Three helpful sites for evaluating a charity’s financial health and accountability practices on your own (or with your advisors) are:
Another way to learn more: Talk to someone involved in the charity to get a better feeling for its mission, goals, and programs. Checking in with your friends, family, business colleagues, and advisors can also help you narrow down your choices.
4. Decide how and when you’ll be making your donations.
Instead of using checks or a credit card to make your donations, consider giving other types of assets that deliver significant tax advantages to you and the charity. Your Boston Private wealth advisor can help you manage your charitable giving activities to offset potential tax liabilities for the current tax year or to shift assets from one tax year to the next, if that makes more sense. For example, you can:
- Give highly appreciated stocks (or highly concentrated stocks) directly to the charity without selling them first. By donating stocks directly, you avoid paying taxes on any long-term gains and so does the charity. Your wealth and tax advisors can help you determine the amount and timing of your gifts to maximize their tax and/or portfolio balancing benefits.
- Use a donor-advised fund to receive your tax-deductible donations of cash, stocks, or other assets and give them the potential to grow until you’re ready to make gifts (or “grants”) to other IRS qualified charities.
With a Donor-Advised Fund, all transactions and required documentation for IRS reporting are handled by the fund sponsor and you receive tax-ready confirmations of your contributions and grants, and quarterly investment statements for the account.
- Donate a required minimum distribution from a traditional IRA. If you give these distributions directly to a qualifying charity, you won’t pay taxes on the income and the charity doesn’t pay income taxes either. But this “qualified charitable distribution” can’t exceed $100,000 for the tax year and can’t be donated through a donor-advised fund or a private foundation.
- Create a private family foundation to donate substantial assets to charity, keep your donations private, involve your family directly in the giving process, and create a legacy for future generations.
Purchasing shares in a socially responsible fund that invests in companies based on their commitment to the environment, social justice, or workplace diversity can help you fulfill your mission too, while also delivering competitive investment returns.
5. Evaluate the impact of your gifts.
Start by regularly monitoring the communications and reports you receive to see if each charity is making meaningful progress toward fulfilling its mission.
To confirm that your contribution will be used as you intended, your lawyer can submit a Grant Agreement with your donation. The agreement can require the organization to report back on how your dollars were allocated to their programs, so you have the information you need to decide if the charity is meeting your expectations.
Your Boston Private Wealth Advisor can help you evaluate the performance of the charities you’ve chosen. “Our goal is to be the quarterback,” explains Sheehan. “After we’ve discussed with you how we can help you make a more strategic approach to your philanthropy, we’ll bring your other planning professionals into the discussion to determine the best way to execute the plan.”
“Working together, we’ll help you integrate your plans for more meaningful, effective giving into your personal wealth and estate planning strategies.”
1 - The 2018 U.S. Trust Study of High Net-Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, https://www.ustrust.com/articles/2018-us-trust-study-of-high-net-worth-philanthropy.html
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