If you have been a faithful reader of this blog, you know that I have been all over the place discussing the “why” of philanthropy: “why” you might do it, “why” certain famous individuals have become philanthropists, and “why” your family might consider taking the plunge. (If you don’t remember, check out the archives at www.charitable-nation.com.) Now, I want to spend a little time discussing the tools and techniques of charitable planning. We can assume that you have sifted or are sifting through the “why” and you now want to understand a little bit of the “how.” However, if you have not yet done this soul-searching, I urge you to seriously consider the “why” of philanthropy before the “how”. The use of charitable tools without charitable intent is meaningless.
The first question you have to ask yourself is this: what kind of charitable donor am I? There is a broad spectrum of donors ranging from those who donate a few bucks only when the mood strikes them or when their friends “guilt” them into a donation all the way up to the serious philanthropist who invests major dollars in charitable causes expecting to see real results. Understanding the type of donor you truly are or hope to be as well as understanding your underlying motivating passions will go a long way toward making your plan a reality. With this knowledge in hand, the tools and techniques of charitable planning fall into place much more simply.
Many of us fall most appropriately in the mid-point, the “proto-philanthropist” category, where we may want to give more than we have in the past, but we want to make sure that we give it efficiently and make a difference without necessarily involving a family foundation or a trust or other complex legal mechanism. Moving from casual or checkbook philanthropy to the “proto” philanthropist level generally involves making a commitment or commitments – you make a multi-year pledge to your alma mater’s capital campaign, you consider making a planned gift to the American Red Cross in the form of a charitable gift annuity, you name the local hospital as a beneficiary of your estate, or you fund a donor-advised fund at your local community foundation. Financial and tax planning are very important at this level. There may be significant estate and/or income tax implications to these gifts and your advisors should be involved.
Philanthropy becomes truly significant when it consumes the bulk of your estate and/or has more than 5 or 6 or 7 zeros appended to the value of the gift(s). Among other things, serious philanthropists may consider the use of lifetime or testamentary charitable remainder trusts (CRT’s), charitable lead trusts (CLT), and private foundations. Each of these tools has its own pros and cons which we will explore in future posts.
For those who choose to engage in serious philanthropy — especially during their lifetimes — philanthropy becomes its own business. This business may calculate a social profit/loss statement rather than a financial one, but it is a business nonetheless. Approaching philanthropy in this way truly can help the serious philanthropist make the leap – from success to significance.
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