Many of our clients will begin this New Year contemplating how to make more effective use of their philanthropically committed dollars. So, I thought it wise to help clients understand some important themes that will make the planning process more effective and the results more satisfying.
Rarely do clients think of the word “teamwork” and its application to charitable planning. Unfortunately, too many clients think that the planning process primarily involves establishing a private foundation, a donor-advised fund, or some type of charitable trust for tax planning purposes. Often, clients minimize a focus on the process within and among the generations in the family and its collective decision-making about how these social investments will be deployed. Rarely are family governance and a mission statement thoroughly vetted before tax structuring is executed.
In addition, for high net worth families, there are several key family advisors critical to effective philanthropic planning.
Invariably, the attorney working with the family will focus on the estate and tax planning and structuring the entity that will hold the philanthropic assets. The second team member is usually the family’s wealth manager who will be able to assist the family in determining the true extent of charitable capacity and the management of foundation, donor-advised fund, or trust assets. Often, there also is an accountant or other key family office advisor assisting in the project.
Each of these professionals is essential to the process. However, rarely are they experts in the complex and sophisticated field of strategic philanthropy. Rarely are these professionals either schooled in or deeply focused on organization, governance, family communication and goal setting as it relates to charitable planning. Increasingly, in the world of servicing high net worth families, contemporary planning dictates that the final and indispensable member of the team is an experienced philanthropic strategist and advisor who works in tandem with the other advisors and family members and helps organize, focus on governance, strategize and maximize the impact, meaning and joy of the client’s charitable initiatives.
Some clients may ask, “Why add more people and complexity?” The reality is that it is highly unusual for a traditional family advisor in the fields of wealth management, law or accounting to have the multi-dimensional skill set necessary to deal with many of the non-tax issues that permeate high net worth families’ philanthropic agendas, including financial, governance and often deeply rooted emotional discussions about philanthropic values and missions across the generations.
I reached out to Bruce DeBoskey, a nationally recognized philanthropic strategist and advisor who has worked with many high-net worth families, and asked him to give us some strategic (and even tactical) advice for families to keep in mind when they are working with their own team members on their philanthropic initiatives. He provides us with five thoughts to guide us this coming year.
The Bottom Line: Donors who wish to truly maximize the impact of their giving must develop a strategic rather than a random or primarily tax driven approach to philanthropy. As with any important decision – investment, business or personal – a thoughtful longer-term strategy enables you to determine what you want to achieve and how to do so most effectively.
Strategic giving: Five steps to get the most bang for your philanthropic buck
1. Engage your family and determine the reasons for giving.
People engage in philanthropy for a variety of valid reasons – including gratitude, theology, altruism, recognition, influence, tradition, tax planning, legacy creation, passing values to the next generation, social pressures and guilt. Engaging family members across the generations, up and down the generational ladder, in meaningful discussions about what motivates your giving is an essential first step to developing a strategic giving plan. Engaging an outside expert in philanthropy to facilitate those conversations can be helpful.
2. Identify desired outcomes.
Philanthropy seeks either to preserve something of value to the donor (like forests, symphonies, libraries, democracy or community) or to improve something that needs to be changed (like reading, equality, the environment, health, education or opportunity), or both. A narrow focus on a limited number of causes enables donors to have a greater impact, derive more meaning and satisfaction, and become more personally involved in the desired outcomes.
“Go deep, not wide” is a mantra of strategic philanthropy.
3. Seek “best in class” nonprofit partners and ask the right questions.
With more than 1.5 million nonprofit organizations in the United States, it is difficult to determine which are truly effective at designing and implementing programs that actually achieve their missions. Before donating to a nonprofit, research its effectiveness, financial sustainability, professional and volunteer leadership, responsiveness to shifting needs, engagement of beneficiaries and other stakeholders, the theory of change deployed, and the difference actually made (rather than just the activities undertaken).
4. Make sure all philanthropically committed capital achieves your mission.
In the U.S., more than $800 billion currently resides in foundations and donor-advised funds. That money is philanthropically committed to mission, has received a federal tax deduction and cannot be returned to the donor. Each year, just 5 percent to 20 percent of those funds are distributed to nonprofits. The remaining capital is invested in public and private markets, usually for the sole purpose of financial growth.
The goals of these investments may not match and may even contradict your philanthropic priorities and objectives. Take steps to ensure that these investments do not counteract – and hopefully further – the foundation’s or donor-advised fund’s charitable mission and utilize all of your philanthropic capital to achieve your charitable goals, employing such techniques as socially responsible (SRI), mission-related (MRI) and program related (PRI) investments.
5. Evaluate and make changes as needed.
Philanthropy that makes a real difference over time is difficult to do well. It takes more than a spate of year-end check writing. Effective philanthropy requires persistence and a willingness to examine not only successes, but also failures. Changing circumstances and unanticipated events or participants all require a philanthropist to continually learn and adjust a strategy – even while it is being implemented.
Legendary Chinese military general, strategist and philosopher Sun Tzu said: “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
In 2015, take your family’s charitable planning a step further by engaging your entire planning team, including your philanthropic advisor, in a thoughtful, inclusive and strategic approach to your philanthropy.
Bruce DeBoskey, JD. Is the founder of The DeBoskey Group, (www.deboskeygroup.com) a Colorado-based philanthropic strategy practice helping families, businesses and foundations across the U.S. design and implement thoughtful philanthropic strategies and actionable plans. He is a Teaching Fellow with Boston College’s Center for Corporate Citizenship and frequent speaker at conferences and workshops on philanthropy. He earned a BA from Indiana University and a JD from the Georgetown University Law Center. Bruce can be reached at email@example.com.