Philanthropy
Philanthropy plays a pivotal role in the financial planning of many affluent individuals, especially those with high-net-worth. Often, these individuals allocate a significant portion of their wealth to philanthropic causes, sometimes even more than what they leave for their family members. A prime example of this is The Giving Pledge, a movement initiated in 2010 by 40 of the wealthiest U.S. individuals, including Warren Buffett and Bill and Melinda Gates. This movement encourages wealthy individuals to commit to donating the majority of their wealth to charitable causes, either during their lifetime or upon their death. As of 2023, 241 individuals from 29 countries worldwide have signed the Pledge.
Aspects of Philanthropy
There are several aspects to consider when it comes to philanthropy. First, it’s important to understand how clients initially discover their areas of interest for charitable giving. This could be through personal experiences, research, or through the influence of others. Second, involving family members and others in the process can be beneficial. This can help to ensure that the philanthropic efforts align with the values and interests of the family as a whole. Lastly, the process for gifting needs to be implemented. This includes understanding the various structures available to achieve one’s charitable goals.
International Philanthropy
International philanthropy and making cross-border gifts are also important aspects to consider. These can present unique challenges and opportunities, and understanding the legal and logistical implications is crucial. It’s important to note that some of the content in Sections 3.1 to 3.3 is derived from “The Philanthropy Toolkit: An Introduction to Giving Effectively” (Stanford University, 2020).
Client’s Charitable Mission
When advising a high-net-worth individual like Bill Gates on their philanthropic endeavors, it’s essential to comprehend the various elements that shape their charitable giving. These elements encompass the client’s motivations for giving, such as Gates’ desire to eradicate polio, and their values, like his belief in equal access to opportunities. A private wealth advisor should be well-versed with Gates’ current philanthropic activities, like his donations to the Bill & Melinda Gates Foundation, the causes he supports, and his collaborators in these endeavors.
Moreover, the advisor should converse with Gates about his ultimate objective for his philanthropy. Gates, for instance, aims to effect change through mission-related investing, channeling a substantial portion of his wealth into initiatives fostering positive societal or environmental change.
Gates’ risk tolerance should also be assessed. Some missions, like starting a new venture, necessitate a certain level of risk tolerance. Alternatively, Gates may opt to back established charitable organizations with a proven track record, mitigating risk with his philanthropic donations.
Furthermore, the advisor should delve into the issues that matter to Gates and the philanthropic legacy he aspires to leave. Once the advisor comprehends Gates’ personal motivations, values, risk tolerance, and intended legacy, they can assist Gates in identifying a focus area or areas based on the issues most significant to him and the desired outcomes.
Understanding Client’s Motivations for Charitable Giving
Grasping a client’s motivations for charitable giving is a pivotal aspect of the financial advisory process. This understanding can be achieved by asking open-ended reflection questions that guide the client on their journey of self-discovery. For instance, a financial advisor might ask a client like Bill Gates about his motivations for establishing the Bill & Melinda Gates Foundation, his hopes for the impact of his philanthropic gifts, and his immediate and long-term goals for philanthropy.
Identifying Client’s Values
After understanding their motivations, it’s essential to identify the client’s values. These values can encompass a wide range of concepts such as compassion, education, equity, empowerment, inclusion, justice, kindness, liberty, social responsibility, and well-being, among others. For example, Warren Buffet’s commitment to philanthropy is driven by his value for education and healthcare.
Formulating Mission or Focus Statements
Combining a client’s motivations and values can assist in formulating mission or focus statements. These statements clarify the client’s thinking about the overall aims of their charitable giving. They also concisely articulate specific issues of concern and how they may be addressed through the giving. For example, the mission statement of the Chan Zuckerberg Initiative, founded by Mark Zuckerberg and Priscilla Chan, reflects their motivation and values.
- Motivations: The reasons or driving forces behind an individual’s decision to give to charity.
- Values: The principles or standards of behavior that an individual considers important.
- Mission Statement: A formal summary of the aims and values of a company, organization, or individual.
Collaborating with Others
High-net-worth donors are increasingly seeking to collaborate with others who share a similar mission and focus. This collaboration can significantly enhance the impact of a charitable grant on a particular cause. There are several ways in which this collaboration can take place.
Knowledge Exchange
The most prevalent form of collaboration among wealthy donors is the pursuit of learning with others. This could involve joining an affinity group and sharing lessons learned. For instance, groups like the World Wildlife Fund for nature conservation or Amnesty International for human rights are platforms where knowledge exchange can occur.
Funding an Existing Foundation
Donors may choose to delegate their grant money to an existing, well-established entity. This type of collaboration often occurs with a community foundation, which is a public charity that accumulates funds from donors, typically aimed at a specific community. For example, Warren Buffett’s unrestricted gift of USD 30 billion to the Bill and Melinda Gates Foundation in 2006 is a real-world example of this type of collaboration.
Aggregate Funds with Others
Another form of collaboration is for a donor to combine their donation funds with another fund to make a larger impact. This could take the form of a donation to a specific private or public fund that works on an issue of interest to the donor. For instance, a donor interested in education might contribute to a fund like the Global Partnership for Education.
Collaboration Strategies in Funding and Community Service
The two pivotal collaboration strategies in the fiel of funding and community service. The first strategy, coordination of funding strategies, involves identifying other donors who are funding similar issues and coordinating the funding to support each other’s work. For instance, if two organizations are working towards environmental conservation, they can pool their resources to have a greater impact. This strategy can help reduce overlap and allow for strategic planning to address a problem.
The second strategy, collaboration with the community to be served, involves donors identifying a community to serve and may decide to work closely with or even cede decision making about the grant to the individuals working within that community. This could be likened to a multinational corporation working with local communities to understand their needs better. This type of collaboration may involve a listening tour, where donors meet with leaders and staff spearheading the chosen activity to learn and build a rapport. Some donors may wish to have a seat at the decision-making table or alternatively engage in an active partnership with the community leaders. The primary benefit of this approach is the strengthening of trust between the donor and the community.
Involving Family
Involving family members in philanthropic activities can offer numerous benefits, from financial education to enhanced family cohesion. This section explores the advantages and methods of family involvement in philanthropy.
Benefits of Involving Family
- Financial Education: Philanthropy provides an excellent platform for teaching younger family members about finance and investments. For instance, if the family owns a foundation like the Gates Foundation, it can serve as a practical learning environment.
- Family Cohesion: Philanthropic activities can strengthen family bonds. Regular foundation meetings, like those held by the Walton Family Foundation, can serve as family gatherings, fostering unity and alignment even after the donor’s passing.
- Value Discussion: Philanthropy encourages discussions about values and issues, potentially fostering family bonding over the shared goal of “doing good”, similar to the Rockefeller family.
Ways of Involving Family
- Family involvement in philanthropy can take various forms, which are not mutually exclusive. For example, a family member might be involved as a co-philanthropist in a manner similar to Priscilla Chan’s involvement in the Chan Zuckerberg Initiative.
- In this role, the family member may assist in setting priorities, collaborate with the donor in establishing a mission statement or focus statements, act as a sounding board, and generally participate throughout the process.
Family Involvement in Philanthropy
Philanthropy is a significant aspect of many families, especially those with substantial wealth. Involving family members in philanthropic activities can foster a sense of unity and shared purpose. However, it’s crucial to consider the roles and dynamics within the family before involving them.
Roles of Family Members
Family members can play various roles in philanthropy. For instance, Bill Gates, the founder of Microsoft, involved his family in his philanthropic activities. His daughter, Jennifer Gates, serves as an advisor, providing feedback on the philanthropic goals and plans. Similarly, his son, Rory Gates, is an implementer, researching how and where to give to implement the philanthropic goals. In some families, a member may be designated to lead the philanthropy currently or to be a successor to the donor, like in the case of the Rockefeller family.
Considerations Before Involving Family
Before involving family in philanthropy, it’s essential to understand the family dynamics. For instance, in the Walton family, founders of Walmart, one family member might be more interested or suited in actively participating in charitable pursuits than another. Family members may have diverse philanthropic goals that differ from those of the donor and other family members. In such cases, careful navigation is required to determine the optimal method for involving family in philanthropy.
The Giving Process
Philanthropic gifting involves various methods and vehicles, each designed to facilitate the process of making donations. For instance, a person might choose to donate to a non-profit organization like the Red Cross.
Outright Gifting to Charity
The most prevalent method of philanthropic gifting is an outright cash gift to a chosen charity. In countries like the United States, such a donation may qualify the donor for a charitable income tax deduction.
Gifting Appreciated Securities
Another effective method is gifting appreciated securities to the charitable organization. This method not only provides a tax deduction based on the full fair market value of the securities but also eliminates the need to sell the securities, realize the taxable gain, and then make the gift in cash. It can also serve a portfolio management function, such as allowing for tax-efficient rebalancing or reducing tracking error to a benchmark without recognizing gains.
Qualified Charitable Distribution
In the United States, individuals can make a gift of up to USD 100,000 via a required minimum distribution from a retirement plan. This amount would escape income tax that would otherwise be payable if the required distribution were made directly to the individual. This technique is known as a qualified charitable distribution.
Donor-Advised Fund (DAF)
- A DAF is a philanthropic vehicle administered by a not-for-profit institution or the charitable arm of a for-profit financial services organization, designed to facilitate charitable contributions and provide immediate income tax deductions for donors.
- While donors advise on the distribution of funds, the sponsoring organization retains legal control over the donated assets, which can include cash and securities.
- Upon contributing to a DAF, donors receive a tax deduction for the donation amount from their taxable income.
- The assets in a DAF are managed by the sponsor and can be invested to grow tax-free, enhancing the potential impact of charitable donations.
- Donors have the ability to advise on the timing and recipients of grants, which typically go to publicly supported charities like the American Red Cross, Mayo Clinic, Smithsonian Institution, and Harvard University.
- A DAF provides an efficient way to obtain a tax deduction in a specific year while enabling the donor to spread out the distribution of donations over time according to their charitable goals.
- DAFs often allow for successor advisors, ensuring a continuity of charitable intent and family legacy beyond the donor’s lifetime, making them an efficient alternative to creating a private foundation, especially when the size of the donation does not justify the overhead of a private foundation.
Private Foundations
A private foundation is a distinct legal entity, established exclusively for charitable purposes. It often mirrors a family’s philanthropic vision. For instance, Bill and Melinda Gates Foundation, a private foundation, was established by the Gates family to enhance healthcare and reduce extreme poverty globally. The donor can establish a foundation, fund it with various assets, and receive a tax deduction for these contributions.
Key Features of Private Foundations are:
- Primarily funded by one donor. For example, the Walton Family Foundation is primarily funded by the Walton family, the founders of Walmart.
- To maintain its tax-exempt status, it must distribute at least 5% of its assets annually towards charitable endeavors. This can include grants to other non-profits or direct charitable operations.
- Many high-net-worth individuals create a private foundation as the cornerstone of their philanthropy. For instance, the Chan Zuckerberg Initiative was established by Facebook founder Mark Zuckerberg and his wife Priscilla Chan.
- The donor receives a charitable deduction for the gift to the foundation in the year that the gift is made. Subsequent grants from the foundation do not receive further charitable tax benefits.
- Private foundations must have a board of directors, which typically consists of at least three people including family members or close associates. This board oversees all operations, including asset management and grantmaking.
- The board maintains complete autonomy over the foundation’s investment strategies and philanthropic activities, offering significant control and involvement opportunities for the founding members and their families.
- Large private foundations often have staffs to manage the assets and to handle the administrative work involved. For example, the Ford Foundation has a large staff to manage its operations.
- A private foundation may exist into perpetuity. However, some donors prefer to spend down all the foundation’s assets within their lifetime or over a period of years, in which case it is a limited-life foundation.
Strategic Philanthropy: Private Foundations and Donor-Advised Funds
For affluent individuals seeking to make a significant impact through philanthropy, two key vehicles are Private Foundations and DAF . Each serves a unique purpose and carries distinct requirements, offering a comprehensive approach to charitable giving when used in tandem.
Private foundations, such as the Bill and Melinda Gates Foundation, are mandated by U.S. law to distribute at least 5% of their assets annually to charitable causes. This can be a hurdle for large foundations, particularly in their formative years when their philanthropic focus is still being defined. Non-compliance with this distribution requirement can result in penalties.
DAFs, like the Fidelity Charitable Gift Fund, are public charities and thus, are not subject to the same distribution requirements as private foundations. A private foundation can meet its distribution requirement by transferring a portion or all of its required distribution into a DAF, which can then allocate the funds to charities in the following years.
Benefits of Having Both
Operating both a private foundation and a DAF provides several advantages. One key benefit is the ability to donate anonymously through the DAF, a feature not available with private foundations due to public disclosure requirements. Private foundations in the U.S. must submit an annual form detailing their grants, investments, total spending, and expenses to the tax authorities. This form is publicly available, eliminating the possibility of anonymous giving.
Limited Liability Companies (LLCs) in Charitable Giving
Limited Liability Companies (LLCs) are a popular choice for ultra-high-net-worth individuals for their philanthropic endeavors. The primary advantage of an LLC is its ability to limit the owners’ liability against lawsuits, thereby safeguarding the personal assets of the owners from any legal claims against the business.
Unlike a private foundation, an LLC offers more flexibility and privacy due to the absence of annual distribution requirements or public filing requirements. This allows the owners to conduct their charitable activities with greater discretion.
Tax Benefits and Control
An important aspect to note is that the donor does not receive a charitable tax deduction upon funding the LLC. However, such a tax deduction is received when the LLC makes a charitable contribution. This can be a significant advantage for individuals who want to make large charitable contributions while also benefiting from tax deductions.
The LLC is governed by its owners, who have the ability to actively manage the LLC and direct its contributions to charitable activities. They can also make direct donations to other charities. This provides the owners with a high degree of control over the charitable activities of the LLC.
A real-world example of an LLC charitable structure is the Chan Zuckerberg Initiative. This was created by Meta founder Mark Zuckerberg and his wife Priscilla Chan in 2015. This initiative demonstrates how an LLC can be used effectively for charitable giving.
Planned Giving
Planned giving is a strategic approach to philanthropy that involves making contributions to charitable organizations through one’s estate plan. This can include various types of charitable trusts and bequests under a will. A key instrument used in this process is the Charitable Remainder Trust (CRT).
A CRT is a financial tool used predominantly in the United States for philanthropic purposes. It is designed to provide an income stream to the donor or other beneficiaries, while also committing the remaining assets (the remainder) to a future gift to charity. This arrangement combines the donor’s desire for income, tax efficiency, and charitable giving. For instance, a wealthy individual might set up a CRT to provide income for their spouse, while also ensuring a significant future donation to a charity they support.
Features of CRT
- The CRT is an irrevocable, tax-exempt trust created to manage the donor’s contributed assets for the benefit of both the non-charitable beneficiaries (i.e., donor, spouse, and others named) and the charitable beneficiaries.
- A trustee, who could be a financial institution, a knowledgeable individual, or the donors themselves, oversees the investment and distribution of trust assets.
- Once the trust is funded, it pays out a steady stream of income from interest and dividends to the donor or named non-charitable beneficiaries.
- This payment, which must be at least 5% of the trust’s assets, can be a fixed annual amount (as in a charitable remainder annuity trust, or CRAT) or a variable amount based on a fixed percentage of the trust’s value, recalculated annually (as in a charitable remainder unitrust, or CRUT).
- After the lifetime of the donor or non-charitable beneficiaries, or a specified term of up to 20 years, the remaining assets in the trust are donated to the chosen charity or charities.
Benefits of CRT
If Bill Gates sets up a CRT, he and his wife Melinda would be the initial beneficiaries. If both are US citizens, there is no gift tax upon its creation. The donor receives a charitable income tax deduction in the year the trust is established for the remainder value of the trust that will ultimately pass to the charity or charities.
Qualification for Deduction
To qualify for this deduction, the actuarial value of the CRT’s remainder must equal at least 10% of the initial fair market value of the trust assets. The CRT’s remainder may be paid to the donor’s Donor Advised Fund (DAF) or to the donor’s private foundation, although there are special rules when the private foundation is the remainder charity.
Advantages of CRT
Typically, wealthy donors create a CRT to obtain the charitable tax deduction, to continue to receive a lifetime benefit from the assets transferred, and to benefit the charity when the trust terminates. Using appreciated securities and other property to fund a CRT allows the donor to diversify the assets transferred to the trust with no immediate capital gains taxes. However, as distributions are made to the individual beneficiaries, they may be responsible for capital gains tax consequences.
Charitable Lead Trust (CLT)
A CLT is an irrevocable trust that allows a donor to contribute assets to a trust, which then makes predetermined payments to one or more charities for a set term. This term can be for a specific number of years or the lifetime of one or more individuals. For instance, if Bill Gates sets up a CLT, he could have the trust pay out to the Bill & Melinda Gates Foundation for a set number of years. The payments can be either a fixed sum, known as a Charitable Lead Annuity Trust (CLAT), or a variable sum based on a percentage of the trust assets, known as a Charitable Lead Unitrust (CLUT).
At the end of the trust term, the remaining assets are distributed to the non-charitable beneficiaries, usually the donor’s heirs. For example, Bill Gates’ children could be the beneficiaries of the remaining assets.
Tax Benefits (CLT)
The tax benefits of creating a non-grantor CLT, upon the donor’s death via a will, are two-fold:
- Estate tax is due only on the actuarial value of the remainder that will ultimately pass to the individual beneficiaries (the donor’s heirs).
- Charitable income tax deductions are available to the CLT based on the distributions it makes each year to the charitable beneficiaries.
Zeroed-Out CLAT
A strategy often used is a zeroed-out CLAT, which is a CLAT with an annuity so large that the actuarial remainder value is zero. If the property contributed to the CLAT has appreciated significantly, then the remainder can have significant market value despite its actuarial calculation of zero, and that appreciation will pass tax free to the remainder individual beneficiaries.
Cross-Border Philanthropy
General Principles
High-net-worth individuals often participate in cross-border philanthropy, a practice of donating to causes outside their home country. This form of philanthropy presents unique challenges and considerations, requiring a comprehensive understanding of the geographic area and issues they wish to support. This understanding can be enhanced by partnering with an entity knowledgeable about the area and issues.
Risk Mitigation
One of the key areas requiring scrutiny in cross-border philanthropy is risk mitigation. For instance, there is a significant risk of donating to an organization involved in illegal activities such as money laundering. A real-world example is the case of US donors who need to be aware of the restrictions imposed by the PATRIOT Act, a law enacted in 2001 to prevent the funding of terrorist activities.
Accountability
The question of who is ultimately responsible for the good stewardship of the donation can be complex in international giving. This is due to the many entities that could potentially be responsible, such as a local non-profit, an intermediary organization, or a domestically based organization. It is essential for donors to have clarity on which entity is responsible to ensure they receive the accountability they expect. In emergency funding situations, there is also the question of whether the organization can expect further funding once the crisis passes. Donors should be clear about what the donee organization can expect in terms of future funding.
Cross-Cultural Competency
In the current globalized era, Cross-Cultural Competency is a vital skill. It involves the ability to function effectively across different cultural contexts, particularly in the dynamic international environment where political issues are constantly evolving. This dynamism often poses challenges for donors in obtaining reliable, current information.
Working Across Cultures: Policies and Practices
As per Winer and Brill (2018), to work effectively across cultures, it is essential to have explicit policies and practices in place. These should be guided by a deliberate set of principles and ethics. For example, a multinational corporation like Google must respect local cultures in its global offices to avoid negative impacts.
Role of Intermediaries in Cross-Border Donations
Donors are often advised to make cross-border donations through intermediaries, such as renowned international aid organizations like UNICEF. These organizations possess the expertise and resources to navigate the international landscape more proficiently, ensuring donations are used effectively and ethically.
US Cross-Border Grantmaking
US Cross-Border Grantmaking is a complex process that involves a series of regulations both from the US and foreign countries. Foundations that participate in this process must establish compliance protocols to ensure adherence to these regulations.
According to Hart (2018), there are several key areas of responsibility for grantmakers. One of these areas is the rules of the US Internal Revenue Code for qualifying grants under the charitable contribution rules.
Equivalency Determination Rules
There are two main rules that define this qualification. The first rule is the equivalency determination. This is the process of determining that the donee non-US charity is the equivalent of a US public charity. For instance, a charity in the UK, such as the British Red Cross, would need to meet the same criteria as a US charity like the American Red Cross to qualify.
Expenditure Responsibility Rule
The second key rule is expenditure responsibility. This is the process of determining that a foreign charity will use the grant for appropriate purposes. This process involves four steps: a pre-grant inquiry, a written grant agreement, a reporting mechanism from the donee, and a filing by the non-US charity to the US tax authorities.
Charitable Giving in Other (Non-US) Common Law and Civil Law Jurisdictions
Charitable giving is a significant aspect of many societies, influenced by regional legal structures, cultural norms, and tax policies. This note focuses on the mechanisms of charitable giving in Europe and Asia, with a particular emphasis on common law jurisdictions like the United Kingdom, Hong Kong SAR, and Singapore.
Charitable Giving Vehicles in Other Common Law Jurisdictions
In common law systems, charitable giving often takes place through two main vehicles: charitable trusts and foundations. For instance, consider the Bill and Melinda Gates Foundation in the United States, a real-world example of a foundation. The donor, in this case, Bill and Melinda Gates, endows the foundation with assets. The foundation’s board then manages these assets to generate income for charitable activities. Similarly, the Wellcome Trust in the United Kingdom is an example of a charitable trust where the donor transfers assets to a trustee who manages them for charitable purposes. Both these mechanisms typically receive tax exemptions on income and capital gains, and donations may be tax-deductible for the donor.
Charitable Giving Vehicles in Civil Law Jurisdictions
The concept of charitable giving vehicles in civil law jurisdictions. Unlike common law jurisdictions, civil law jurisdictions typically do not recognize trusts. However, some have enacted trust legislation, such as the Hague Trust Convention, which is recognized by 14 countries. In these jurisdictions, the approach to charitable giving emphasizes more on direct tax subsidies and less on trust law.
Philanthropic Vehicles in Civil Law Countries
Wealthy individuals in civil law countries like France and Germany often use various types of vehicles for charitable giving. The choice of vehicle and its tax efficiency can vary significantly, but they generally strike a balance between promoting philanthropy and ensuring accountability.
Common Themes
- Regulatory Environment: More regulated environments like Germany offer structured but less flexible vehicles, with strict reporting and transparency requirements.
- Tax Considerations: Tax incentives, such as those in France, are a significant driver of philanthropy, although the extent and nature of these incentives differ.
- Flexibility vs. Control: Donors often have to balance their desire for control over their philanthropic endeavors with the flexibility provided by different vehicles.
- Cultural Factors: Cultural norms heavily influence the preferred methods of giving in each region, with some cultures favoring public and others private philanthropy.
Practice Questions
Question 1: Philanthropy is a significant objective for many high-net-worth individuals, often receiving the largest portion of their wealth. Which of the following is not a key aspect to consider when it comes to philanthropy?
- How clients discover their areas of interest for charitable giving
- The process for gifting
- The tax implications of the client’s business ventures
Answer: Choice C is correct.
The tax implications of the client’s business ventures are not a key aspect to consider when it comes to philanthropy. While tax implications can be a factor in the overall financial planning of a high-net-worth individual, they are not directly related to the process of philanthropy. Philanthropy is about giving back to the community or supporting causes that the individual is passionate about. It involves identifying areas of interest for charitable giving, involving family members in the process, and understanding the process for gifting. These are the key aspects that need to be considered when advising clients on philanthropy.
Choice A is incorrect. How clients discover their areas of interest for charitable giving is indeed a key aspect to consider when it comes to philanthropy. This involves understanding the client’s passions, values, and interests, and helping them identify charitable causes that align with these. This is a crucial step in the philanthropic process as it ensures that the client’s charitable giving is meaningful and impactful.
Choice B is incorrect. The process for gifting is also a key aspect to consider when it comes to philanthropy. This involves understanding the various ways in which a client can make charitable donations, such as through direct donations, setting up a charitable trust, or establishing a foundation. It also involves understanding the legal and tax implications of these different methods of giving. This knowledge is crucial in helping clients make informed decisions about their philanthropic activities.
Question 2: Why is it beneficial to involve family members in the philanthropic process?
- To ensure that the philanthropic efforts align with the values and interests of the family
- To increase the amount of donation
- To reduce the tax liability
Answer: Choice A is correct.
Involving family members in the philanthropic process is beneficial primarily to ensure that the philanthropic efforts align with the values and interests of the family as a whole. Philanthropy is not just about giving money, but also about making a difference and leaving a legacy. By involving family members in the process, it ensures that the causes and organizations supported are ones that resonate with the family’s values and interests. This can lead to more meaningful and impactful giving. Additionally, involving family members can also help to instill a sense of social responsibility and philanthropic values in younger generations. It can be a way to teach them about the importance of giving back to the community and helping those in need. It can also be a way to bring the family together and strengthen family bonds.
Choice B is incorrect. While involving family members in the philanthropic process might potentially lead to an increase in the amount of donation, it is not the primary reason for their involvement. The main benefit of involving family members is to ensure alignment with family values and interests, not to increase the donation amount.
Choice C is incorrect. While certain philanthropic structures can provide tax benefits, reducing tax liability is not the primary reason to involve family members in the philanthropic process. The main benefit is to ensure alignment with family values and interests. Furthermore, tax laws vary by country and the specific tax benefits of philanthropy depend on a variety of factors, including the type of donation, the type of charitable organization, and the donor’s tax situation. Therefore, while tax considerations can be a factor in philanthropic planning, they should not be the main driver of philanthropic decisions.
Glossary
- Philanthropy: The desire to promote the welfare of others, expressed especially by the generous donation of money to good causes.
- The Giving Pledge: A commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to giving back.
- International Philanthropy: The practice of donating money, goods, time, or effort to support causes in foreign countries.
- Mission-related Investing: Investments made to support positive societal or environmental change.
- Risk tolerance: The degree of variability in investment returns that an investor is willing to withstand.
- Affinity Group: A group of people linked by a common interest or purpose.
- Community Foundation: A public charity that accumulates funds from donors, typically aimed at a specific community.
- Coordination of funding strategies: A strategy involving donors funding similar issues and coordinating efforts.
- Collaboration with the community to be served: Donors working closely with a community to identify and address its needs.
- Philanthropic Gifting: The act of making a gift or donation to a charitable cause.
Private Wealth Pathway Volume 2: Learning Module 7: Transferring the Wealth; LOS 7(c): Discuss and recommend appropriate wealth management planning approaches for the preservation of wealth across multiple generations through charitable giving and philanthropy