“No one has ever become poor by giving.” – Anne Frank
The Thanksgiving holiday reminds us of the many things for which we should be thankful. A natural response to the resulting gratitude is for us to give back, often through providing our time and treasure to various charities.
This is a good thing, as in the United States, our societal well-being depends on private charity, which is why the government has created so many benefits for those that do give to charity. For those savvy stewards, US philanthropy has grown into a win-win opportunity where we can do well by doing good. US philanthropy now encompasses a sophisticated repertoire of financial instruments and investment strategies that align with a donor’s personal values. The modern US philanthropist can choose from a variety of vehicles, such as Charitable Remainder Trusts (CRTs), Charitable Lead Trusts (CLTs), Donor-Advised Funds (DAFs), family foundations, and even ESG (Environmental, Social, and Governance) investing to create a lasting impact.
Charitable Remainder Trusts allow donors to contribute assets, gain income, and benefit from tax deductions, with the remaining assets going to charitable causes. This tool is particularly effective for those who have highly appreciated assets, as such assets can generally be sold for no current tax and create income that lasts a lifetime (or the lifetime of you and a partner). In some settings, this can result in up to 50% more income for the donor, additional funds for charity, tax-deferred growth, reduced estate taxes, and a large income-tax deduction.
In contrast, Charitable Lead Trusts provide charities with income first and then pass the remaining assets to the donor or other beneficiaries. This is a strategic way to support immediate charitable goals while planning for future family inheritance and potentially obtaining a sizable income-tax deduction.
Donor-Advised Funds serve as a flexible and less formal option for philanthropy, allowing donors to contribute to their own private fund from which to recommend grants to various organizations over time. DAFs have largely replaced small family foundations as a way to collect tax-deductible contributions that grow tax-free and that the donor can ultimately direct to his or her preferred charities.
Family foundations are for more substantial charitable gifts and can take the vision of philanthropy even further, offering a structured way to involve multiple generations in charitable giving. Funded by various means, including the residual assets from a CRT, family foundations can become a hub for a family’s charitable activities, providing ongoing support for causes that resonate with the family’s values and leave an indelible legacy.
A final and often overlooked dimension of philanthropy is ESG investing which, when properly executed, allows donors to align their investment portfolios with their commitment to ethical and sustainable practices. This approach of giving back unites financial performance with the pursuit of societal and environmental good. In some settings it is also possible to enjoy greater return potential while investing for impact. For example, I recently created the Argos AlphaESG IndexTM, a stock index currently distributed by BNP Paribas, that combines financial and social returns to offer the opportunity to do well by doing good.
In short, the US provides myriad opportunities in the philanthropic landscape to truly do well by doing good. These above examples are just a sampling of the many opportunities currently available to us to help others, our community, and even our own families. Dr. Dylan Minor is the Chief Strategist and founder of Omega Financial Group in Santa Barbara, which strategically integrates philanthropic and financial considerations into its client family’s plans. He also has held professorships at Harvard University and Northwestern University. Currently, he is faculty at the Anderson School of Management (UCLA) and Columbia University. He can be reached at email@example.com.