The Strategy Behind Philanthropy
Facilitating the evolution from charitable donor to philanthropist could be one of the most satisfying things you do for your clients.
Philanthropy. The word derives from a Greek word meaning “love of mankind.”
Philanthropic acts, therefore, imply a humanitarian vision—a kind of
“seeing ahead” toward an objective.
The word charity, on the other hand, comes from the French word
chrité, meaning “providing for those in need” or “generosity and
giving.” Here, the connotation is responding to a present and
While the two words have obvious overlap in common usage,
drawing a distinction between them is helpful in guiding clients,
whether individuals, families, or organizations, seeking to maximize
the impacts—and amounts—of their giving.
Here’s one simple example: After a natural disaster, writing a check
or volunteering one’s time can be considered charity. But for some,
natural disaster preparedness becomes a humanitarian cause.
Their charitable intent transforms into philanthropy when they begin
to strategize about how to maximize their impact over time.
When clients have firmly established priorities and their financial
house is in good order, they want to increase their charitable giving.
Though they may not think of themselves as “philanthropists,” that is
nonetheless what they are preparing to become—they are ready to
move beyond just responding to planning. Facilitating this evolution
could be one of the most satisfying things you do for your clients.
Here are some simple steps to help guide your clients through the
transition from charitable donor to philanthropist.
Create a Simple Philanthropic Strategy
Before writing a check or setting up a charitable trust, create a
1. Create a mission statement that includes general categories of
strategic focus—for example, education, health, art, research,
conservation, diversity, or natural disaster responsiveness—as
well as some specific goals you’d like to accomplish in one or
more of those categories.
2. Identify the number of organizations you want to benefit.
3. Commit to a dollar amount for your annual contribution (to be
reviewed each year).
4. Engage your successors to prepare them to carry forward the
philanthropic mission and vision.
A philanthropic strategy doesn’t have to be complicated. It just needs
to be sufficient to help your client stay focused on the philanthropic
mission. Think for a moment about how this kind of simple but
profound embrace of strategy could transform giving. The amounts
given to causes tend to increase when intent is grounded with a clear
strategy. This creates a win-win situation, because your client is both
giving more and more satisfied about that giving. Over the course of
my work, I have seen philanthropy bring clients together, provide
personal satisfaction, increase mental, emotional, and spiritual health,
and help create global connections.
Research bears this out, too. A 2017 study conducted at Indiana
University’s Lilly Family School of Philanthropy concluded that
“giving makes us happy. The study found that giving to charitable
organizations is positively related to life satisfaction.”
Focus on Impacts and Transfer of Values
There are great tax benefits for your clients who give to qualified
charitable organizations. However, today’s philanthropists are
increasingly making gifts of time and talent to help their
communities and causes. There has also been a shift in mindset
In the past, many buildings—from libraries to museums and more—
carried the name of your client making the gift. Today, visibility and
recognition are less important to philanthropists. Instead, they are
more interested in the impact the gift will have. They want to learn
about a recipient charitable organization at a deeper level. They
want to know who is leading the organization, understand its
finances, meet its board members, learn about its outreach
programs and reputation in the community.
And beyond all this, true philanthropists dedicate time to create a
sustainable process that can be shared with the next generation, thus
allowing the next generation to become socially responsible and
involved in ways that fulfill the life purpose of the philanthropic mission.
That generational transfer of values is what I see clients desiring
more than anything. It starts with values-driven discussions that can
form the mission statement, which should in turn inform the
philanthropic strategy. Then, direct interaction and participation with
carefully selected charitable organizations will be inherently
connected to the client’s expressed values.
With an overall strategy and impact mindset in place, it’s time to help
clients get specific about implementing the strategy and making
actual gifts. In both cases, what’s needed is both vision—the very
heart of philanthropy itself—and discipline to execute a strategy.
There are many tools available to your clients for making financial
gifts to charitable organizations and implementing a strategy:
A gift in cash is the simplest form of charitable giving as
the tax deduction will be equal to the amount donated without
any retained benefits. If you contribute $250 or more, you must
prove to the IRS that you (a) made the donation and (b) you didn’t
receive any benefits.
Gifting stocks directly to a charitable organization is tax-efficient
for the grantor, especially if the gift consists of long-term
appreciated securities. There will be no capital gains taxes on
the transfer, and the gift can provide a charitable deduction in
the grantor’s income tax return in the year of the gift. The
deduction can equal the full fair market value of the stock, up to
30 percent of adjusted gross income (AGI).
• Donor-Advised Funds (DAFs):
These are easily established
investment accounts that are administered by a charitable sponsor,
such as a community foundation, a financial institution, or other
non-profit charity. A simple account application and a name for
the fund—such as Smith Family Foundation—will create the account. There is no start-up cost, and minimum contributions start
as low as $5,000 depending on the sponsor’s guidelines. The
grantor can serve as advisor or successor advisor and make
recommendations for distribution out of the account to non-profit
organizations at any point in the future. However, the tax deduction
for the initial contribution is realized in the year it is given.
Some sponsors will accept DAF contributions in the form of
appreciated stock, real estate, and other unique assets. There is
an immediate tax deduction for the full fair market value of the
gift. Because DAF sponsors are public charities, contributions to
them receive favorable tax treatment, including a tax deduction
limit of 30 percent of AGI for gifts of stock or property compared
to a 20 percent limit with a private foundation as defined on IRC
Sections 170(b)(1)(C) and (D).
An attractive feature is that distributions from the funds can be
made across multiple charities and there is no specific amount
or number of charities required. Also, money in the DAF grows
tax-free, and there is no legal payout requirement. Private
foundations, on the other hand, require a minimum annual payout
rate of 5 percent, as below.
• Private Foundations:
These are formalized charitable accounts
with a higher degree of regulation than DAFs. Private foundations
require similar formalities as corporations, including annual board
meetings, bylaws, and documentation. They allow individuals to
retain control of donated assets and only distribute a minimum
of 5 percent out to qualified charities. Assets in a private
foundation can be directed in whole or in part to a DAF.
• Charitable Trusts:
Charitable trusts agreements allow you to
create a lifetime benefit to the grantor or others through a payout
distribution and with a split interest to a charity or family depending
on the trust type. There are two types of charitable trusts:
charitable remainder trust (CRT) and charitable lead trust (CLT).
CRTs have been around for decades, and many families create
them during their lifetime or at death. They allow for a transfer of
appreciated assets, avoidance of capital gains, and an immediate
charitable deduction. The lifetime beneficiaries (grantors) receive
a payout for life or for a term specified in the trust documents. At
the end of the term or grantor’s death, the remainder is paid out
to charities. This is an attractive planning vehicle for those with
highly appreciated investments who want to diversify their
holdings without paying substantial income taxation and still
enjoy the inflow of annual payouts. As you create the CRT
documentation, you will be able to identify your preference to
receive annuity payouts that are either fixed (“CRAT”) or variable.
Variable amounts can fluctuate or adjust based on the growth of
the portfolio on an annual basis; these are called “unitrust”
CLTs have many similarities to CRTs since they have a split interest
feature; however, in the CLT, the stream of income from the assets
gets paid to a charitable organization each year as opposed to
the grantor. Each year, the grantor receives a gift tax deduction on
the value of the income stream since the charities are receiving
the annual income flow. The remainder reverts to the grantor or a
family member at the end of the trust term. This is a great strategy
when using cash or assets with growth potential. As with CRTs, the
payouts to charities can be fixed (“CLAT”) or variable (“CLUT”).
The only additional consideration when creating charitable trusts
is that they require annual administrative management and tax
reporting of expenses.
• Gift Annuities:
Many large nonprofit organizations, including
universities, offer charitable gift annuities. You can support a
cause by making a gift to a charity and you receive a deduction
the year of your gift. The following year, and each successive
year thereafter, you and another person will receive distributions.
This is a simple contract you can create directly with the charity.
A portion of the annuity payments is tax-free for the life
expectancy of the grantor. This may be helpful to donors looking
to increase their retirement income and is an alternative to a CRT.
• Pooled Income Funds:
These are charitable gift options that allow
you to generate income while giving a small portion to charity. You
can “pool” together different securities and even cash to create a
larger amount of money and produce income for your lifetime. The
remainder of the pooled income fund is donated to charity. Some
charitable deductions for tax purposes may be available.
• Retirement Assets:
Retirement accounts may also be a good
vehicle to pass to charities at death or during a lifetime. The IRA
Charitable Rollover allows individuals who are at least 70½ years
old to donate up to $100,000 to charitable organizations directly
from their IRA without the distribution being counted as taxable
income. The gift must come from a traditional or Roth IRA, and
gifts must be made directly to a qualified charitable organization.
Additionally, no consideration must be received in exchange for
the gift. A receipt must be obtained from each charity to which a
donation is made.
A potential further benefit is fulfillment of required minimum
distributions (RMDs) from IRAs. If the gift-giver does not need the
income, yet RMDs are necessary, then channeling the funds to
charity via qualified charitable distributions (QCDs) can be an
ideal tax-advantaged strategy. Be sure to request distribution
checks made out directly to the charity—though it’s permitted for
the account owner to receive the check and present it personally
to the charitable organization.
• Life Insurance:
Charitable organizations may be named as
beneficiaries of life insurance policies. The gift will be completed
at death, providing charitable income tax deductions.
Giving USA reports American individuals, bequests, foundations,
and corporations gave an estimated $427.71 billion to U.S. charities
in 2018. There’s tremendous impact wrapped up in that overarching
figure—and there’s even more impact that can be achieved as
your clients make the jump from being charitable donors to
philanthropists that inspire generations to come to carry on their
Nancy E. Anderson, J.D., CTFA, CAP®, CEPA, ADPA, is a senior vice
president and head of wealth strategy and trust services at
Calamos Wealth Management in Naperville, Ill.