Charitable Giving and Choosing the Right Cause for You
by Sumona How to Guides 28 April 2022
Charitable giving is an important aspect of wealth management.
A healthy philanthropic portfolio can reduce your tax liability, strengthen interpersonal ties within your family, bridge generations and build a family legacy everyone can be proud of, and even benefit you from an investment standpoint.
The question then becomes, how do you select a charitable giving vehicle that adequately addresses all these goals? Our philanthropic advisors at Whittier Trust provided their thoughts on the importance of charitable giving and key considerations when choosing which cause is right for you.
What are your values?
This is perhaps the single most important question to ask yourself while looking for a philanthropic effort. Quite simply, don’t zig when you should be zagging.
If you care a lot about inner-city education, love the arts, or have a passion for saving rainforests, that’s where your money and focus will do the best because you will be most committed to seeing success in those programs.
Engaging with philanthropy as a family can create memorable experiences and help define family values while providing a level playing field for family members of multiple generations and branches to work collaboratively.
Charitable giving can also help educate the future generations, providing opportunities for experience with investments, financial statements, evaluation, and deliverables.
It’s important to ask yourself what causes your family cares about. If they’re not that interested in the goals of the philanthropy, they will disengage.
Choosing a cause they care about will allow for the establishment of family traditions, and an eagerness to carry on the legacy you build even after you step away.
Opportunities for Investing
Did you know that you can put your investments to work on behalf of your charitable mission without sacrificing returns?
By avoiding certain asset classes to retain maximum flexibility, and looking at investing opportunities through the lens of environmental, social, and governance (ESG) factors, you could be looking at positively impactful investments that mitigate risks, reduce taxes, and ensure long-term sustainability, all while growing your assets.
Contributing to a Donor Advised Fund (DAF) may be useful if you want to test the waters by giving a relatively small amount at first.
These funds have the lowest overhead costs for charitable giving vehicles while providing the highest available tax deductions for certain contributions.
They are also useful if you value simplicity, and privacy, and are undecided about what causes to fund or want to avoid tipping a small organization out of public charity status.
However, you may be uncomfortable with giving up legal control of grant-making or investment management decisions and want to make sure your legacy and directions are adhered to after you’ve stepped away.
It’s important to look closer at a DAF if you anticipate significant expenses associated with giving, or if you want to see what restrictions they place on your gift and giving to non501c3 entities.
You may also consider establishing a private family foundation. These are useful for those interested in perpetuity, legacy, and prestige.
Family foundations allow for greater family involvement, more direct action on more specific goals, and greater control of charitable and investment decisions. They can also establish formal meetings and processes to govern foundation business and act as a buffer for donation solicitation.
However, accomplishing your philanthropic goals will likely necessitate low overhead, and your initial funding amount may not justify the costs to administer.
You should also not consider this route if privacy is of great importance, you don’t have access to a skilled investment manager who can provide critical financial consultation, don’t have buy-in from an active and involved board, or are not sure about your level of commitment.
Giving to the right cause, at its core, simply requires diligence and care. Look into a company to see how they interact with ESG factors themselves. Are their inner logistics solid? What’s their track record of success? You should give the same if not more level of care to this aspect of your wealth management as you do with proper investing opportunities.