Find Your “Why” About Charitable Giving

One of the most frequent questions I get asked as an advisor is what is the right vehicle for a client’s charitable giving. And the frequency of this question has led to a commensurate amount of suggestive material on the internet; advising and educating (and oftentimes advocating) on how to choose between giving directly to a charity vs. using a donor advised fund vs. creating a private foundation. These articles focus on several factors, including costs, control, tax benefits, ongoing burden and legacy. But very few of these articles start at the right place. The right “how” to give needs to start with your “why.” Stated another way, choosing the right vehicle starts with defining your charitable mission.

Starting Point: the Financial Plan

Since a financial plan is a strategy to use your assets and income to maximize your happiness, it is the foundation for your charitable mission. For some people, the sole focus of their financial plan is on their own financial independence. Their financial strategy is to use every dollar they have to pay for their own needs and wants. Others expand the focus of their planning to family members. Their happiness is found by using their wealth to enrich the lives of those they care about. And finally, there are others whose happiness is found in making an economic impact beyond themselves and their family.

For that final group, a main focal point of the plan is to divide each dollar of net worth between independence, legacy and philanthropy. How you divide each dollar is based on what you want your wealth to accomplish. As for philanthropy, that could be aiding a particular organization, furthering a favorite cause, assisting several causes or building a multi-generational philanthropic family culture. That “why” is the focal point of your charitable mission statement.

Crafting a Charitable Mission

Simply put, your charitable mission statement is the answer to your why. Why you have elected to use a portion of your assets and income for charity rather than yourself and your family will be highly individual:

• It can be very you centric (This is why giving makes me happy) 
• It can be very organization centric (This is why I want to support the University of Wisconsin) 
• It can be very cause centric (I want to help eradicate childhood cancer)
• It can be very family centric (I want to create a multi-generational culture of giving in my family) 

Or, a charitable mission statement can be (and generally is) a combination of those. Creating one forces you to really think about connecting to your why—and making certain that the giving strategy, as part of your broader financial plan, will further your happiness.

Charitable Mission Statements in Practice

A well-crafted charitable mission tells us the best structure for giving. If, for example, your happiness is maximized by leaving a gift to your alma mater, then there is no reason to complicate your giving with a donor advised fund or a private foundation; a direct gift to that university is the best structure to accomplish your mission. However, if your mission is focused on one or more causes, such as helping abused children, then a donor advised fund or a private foundation are likely better giving tools because you (and your family after you are gone) can monitor what organizations are making the most impact on this cause, and provide resources accordingly. If your mission is more internally focused on creating a giving culture in your family, then a private foundation is probably the best structure.

‘F’ is Also For ‘Foundation’

So, when it comes to what structure to use for your giving, are issues like taxes and costs important? Sure. But focusing on them before charitable mission is like building a house by focusing on the foundation last. It does not work and it will lead to bad results. Start first with your why, then move to your how. 

For more insights, check out our full charitable giving series, which includes following The Howards, a fictional family as they begin their philanthropic journey.