Stages of Philanthropy
Written By: Kevin Reardon, CFP®
Imagine you wake up tomorrow and realize you have more than enough money to secure your lifestyle. You also know you have an excess amount of time on your hands. After a period of reflection, you are filled with a sense of gratitude. Now what?
We have identified various stages of philanthropy that clients may experience. The stages are not necessarily progressive. Someone who completes every stage isn’t necessarily more successful or accomplished than the person who invests 100% of their resources in one stage. The ultimate goal is to maximize the stages that fit your situation.
Stage 1: Gifting
The initial stage of philanthropy typically begins with a small donation. This may include monetary gifts to local charities or a well-known national non-profit. There is a sense of satisfaction knowing you have helped a local charity or contributed to a global cause. However, people initially struggle emotionally with the concept of charitable giving at this stage because it’s an act that reduces your net worth, something contrary to what you’ve been trying to do your entire life. Much of the emphasis at this stage has to do with the tax benefits and how best to facilitate them (QCD, stock gift, cash, etc.). We have addressed these issues in previous blogs, such as: Tax Smart Giving and Logistics of Qualified Charitable Distributions.
Stage 2: Volunteering
In addition to giving assets, the gift of your time and knowledge is a great way to support a non-profit. Invariably, a friend or colleague may invite you to serve on a committee, help with a project, or facilitate a fundraiser. Before you know it, you’re investing time and knowledge towards a worthy cause. People find this work interesting, and you meet new people who share common interests. In addition, it gives you a behind-the-scenes look at how a non-profit operates. You may get a glimpse of their budget, fundraising efforts, staffing issues, challenges they face in accomplishing their mission, and a host of other issues. This inside knowledge can serve as a helpful resource as your philanthropy goals develop.
Stage 3: Investing in a Cause
Some people have a known cause that is important to them, whereas others develop an interest in a particular charity over time. At this stage, there is a higher level of discernment about how much you will give to a charity. The dollar amounts are typically more than you’ve ever given before. People view these gifts as more of an investment in a cause than a charitable gift.
From the perspective of your time, you may lead a committee, serve on the board of the organization, or run a major fundraiser. After a period of years, your family and friends will all know how important this cause is, and you have invested accordingly.
Stage 4: Charitable Bequests & Life Insurance Policies
An additional strategy is to fund charitable goals through a bequest upon your death. Giving during your lifetime is extremely rewarding, as you can see others benefiting from your generosity. However, there can be hesitation to make larger gifts during your lifetime based on the fear that you might need those funds in the future. When you are gone, you are able to make larger bequests.
Life insurance policies are another way to make a larger bequest on your death. For clients who have older permanent life insurance policies they no longer need, changing the beneficiary to their favorite charities is a way to provide a substantial gift when they are gone.
Working with an estate planning attorney to amend your estate documents may be needed to facilitate a bequest. You may also change beneficiary designations of retirement accounts to direct this type of gift.
Stage 5: Signature Donations
A signature donation is a higher commitment than what we see in stage 3 and possibly stage 4. This stage may kickstart a capital campaign, fund a new initiative, or fortify a charity’s future by way of an endowment. The motivation for these gifts is highly altruistic, with little emphasis on the tax impacts. From a financial standpoint, donors are prepared to make a substantial gift without much impact on their lifestyle. These gifts are typically the donor’s largest and come with a high degree of connection to the charity.
Stage 6: Legacy Planning
One of the highest stages of philanthropy is teaching the next generation how to be discerning givers. The level of involvement can be age-specific, where you teach basic giving principles to young children and slowly increase their involvement in your giving plan. Your net-worth or the dollar value of charitable gifts is not relevant to facilitate great legacy planning, and it can be taught to children of any age. One of the best tools for legacy planning is an annual family meeting to discuss the various gifts (time, talent, treasure) and how to handle them responsibly.
Sharing your time, talent or money is incredibly rewarding and is something we can do throughout our lives. When you have more money and time than you can spend on yourself, your giving skills will develop and you may begin to experience more stages of philanthropy. Some closing words of wisdom given to the Shakespeare team from a wise client are ‘you’ll never regret a gift given with good intentions’.