For centuries, across all cultures and lifestyles, philanthropy has been an integral part of society, creating and sustaining great educational and art institutions, human service organizations and much more. Today, many people who give to charity are doing so in new ways. While the end goal remains the same — positive impact on a need or cause — the road to getting there is increasingly seen as a commitment to intentional and well-planned giving.
To help individuals create a charitable strategy, donor-advised fund Vanguard Charitable has gathered five best practices for philanthropists, drawing on years of experience working with donors and charities. These best practices are posed as questions below to help you consider the effectiveness of your philanthropy. The answers can serve as a guide for developing giving strategies and ensure that, over time, you can optimize your donations, expand your giving and fulfill your charitable plans.
1. How do I define charitable success?
Create a charitable plan that not only focuses on the end result you want to achieve, but also on clear, measurable goals and the steps needed to achieve them. This includes a mission statement to help you define your purpose for giving and determining how to measure your progress against your goals.
2. How does charity fit into my overall financial plan?
In the broadest sense, many individuals end up giving discretionary assets — their wealth — to three main areas: people such as your heirs, the government (IRS) and charity. Understand how giving to each group connects to your estate and tax plans, including situations such as managing a financial windfall. Being strategic with regard to when and what to give enables you to appropriately diversify an existing portfolio, minimize tax repercussions and optimize giving.
3. Who should I involve in my philanthropy?
Reflect on who (spouse, heirs, advisor, lawyer, etc.) you want to include in your philanthropy and to what extent, as well as how they will affect your goals. Effective communication is paramount to successful philanthropy. Set expectations, maintain dialogue and listen with an open mind. Discuss what will happen to your charitable assets when you pass and how to ensure your charitable intentions are honored.
4. What giving tool is best?
Six key factors can help you choose the giving option that best supports your preferences and giving goals. Rank each factor by importance (high, medium, low), which will ultimately allow you to review the giving options that meet your needs.
- Tax efficacy. Review the timing and types of assets you want to give and what tools can maximize tax deductions.
- Cost. Understand the total cost of giving options and determine what you are willing to pay for philanthropic services, knowing that the more money is spent on fees, the less is available for charity.
- Control. Consider how much direct oversight and decision-making power is needed for each aspect of your philanthropy.
- Legacy options. Determine how you want to leave your charitable legacy (i.e., bestowing assets to charities or naming a charitable beneficiary in a will), and determine which options will meet your legacy needs.
- Distribution to charity. Ensure the giving tool allows you to support charitable causes in sync with your mission and, if desired, affords you the ability to give to charities on a consistent basis and/or grant one large sum in the future.
- Recognition v. anonymity. Legally, not all giving tools can be sensitive to wishes for anonymity, while some may be able to cater to specific recognition requests. Determine which option is the right fit.
5. How do I evaluate and monitor nonprofit organizations?
This last step in being a strategic philanthropist can be overwhelming for some donors. Here are a few suggestions that can result in more impactful philanthropy:
- Review an organization’s IRS tax status, financials and governance standards. Understand how the charity spends money, its track record for success and who makes important decisions.
- Determine whether a donation should be used for a specific project or cause, or if it can be used at the discretion of the charity.
- Finally, engage with nonprofit representatives after giving money to continue conversations and monitor results.
