A well-defined charitable-giving strategy can help you make the most of your philanthropic efforts.
If you're like most people who have amassed wealth, you're more than happy to share your good fortune with others. But if you want your philanthropy to have the greatest impact, you should approach your giving with the same thought and discipline that you used to build your personal assets.
Instead of just responding with a yea or a nay to every solicitation you get in the mail or by phone, you should consider sitting down to develop some goals and a plan for achieving them. “The difference between being charitable and being a philanthropist is not a matter of how much money you have, but how much of a strategy you have,” says Richard Marker, a faculty member at the New York University Academy for Grantmaking and Funder Education.
Developing a philanthropic strategy will pay off in numerous ways. Careful planning of how much you donate ¬– and which organizations you support – will simplify the giving process. You’ll have a clear-cut procedure that governs your philanthropy, so you’ll have a process in place to help you weigh the merits of each donation request that comes your way.
A thoughtful giving strategy can also make your donations more satisfying, because you’ll have a better sense of how your donations advance causes you care about. And a systematic and mindful approach to giving has financial advantages as well: It can help you maximize the tax benefits of your philanthropic activities.
There is no one-size-fits-all charitable giving strategy. Here are three approaches to consider:
If myriad causes excite you, you might choose to spread your charitable donations among a range of charities. On the plus side, this approach gives you the flexibility to be spontaneous in your giving, and allows you to work with many different organizations and support a wide range of causes. But donating broadly has downsides: A series of small gifts probably won’t have a significant financial impact on the organizations you target. What’s more, you’ll likely have little influence over how your donation is used.
You may find it more fulfilling to focus your philanthropic resources on just one or two organizations. With this approach you can make a significant financial impact on a particular organization. What's more, as a major donor you may be able to exert considerable influence over the way the charity deploys your gift. This strategy may mean saying no to some worthy causes, however.
You may choose to devote more than money to a charity or cause. You may want to apply the wisdom you’ve gained during your career directly to the causes you care about. One way to take a more active approach in your charitable giving strategy is to launch a foundation. Foundations often are created by families that want to involve children or grandchildren in their philanthropic activities. “A lot of people want to use a foundation as a vehicle to engage future generations,” Marker notes.
Establishing a foundation generates an immediate tax deduction. It also creates a pool of money for future giving, so your philanthropic budget won’t be tied to fluctuations in your income. That said, foundations can be relatively expensive and time-consuming to administer. And donations made by any foundation are disclosed in public filings, so they are not a good fit if you want to give anonymously.
Once you’ve determined the right charitable giving strategy, your advisor can help you choose the appropriate vehicles to put that plan into motion. He or she might draw on numerous strategies and vehicles, from donor advised funds to charitable remainder trusts. Work with your advisor to align your charitable giving strategy with your overall financial plan, benefiting both your family and the causes you support.
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