The year-end charitable giving season is upon us. I like the tax deduction, but I am driven to give because I want to give back and have an impact. You and your clients are probably motivated by similar factors. For me, most of my donations are contributed to the Foundation for Financial Planning (FFP) and a variety of local organizations.
The FFP is the profession’s foundation. It is the only organization solely devoted to providing pro bono financial planning to the underserved, primarily by providing grants to connect those in need with those willing to provide financial planning.
My firm and I have provided pro bono planning many times over the years. We still do, but we can only help a few people that way. So, several years ago, like many of you, we began donating regularly to the FFP and recently I increased my support by accepting an invite to join the FFP’s Board of Trustees.
The mission is simple, but incredibly powerful: To help people take control of their financial lives by connecting the financial planning community with people in need, supporting pro bono advice and outreach activities along the way.
The FFP is a national organization, but I started to give because I had great volunteer experiences and saw firsthand the impact the work had on recipients. I increased my involvement because I saw so many other planners around the country making a difference and I wanted to help enable more of that. I can’t help but be proud of my profession and the FFP when I see them helping military personnel, single parents, domestic abuse victims, families displaced by natural disaster, and financial abuse victims, among others.
This year I made an additional pledge personally that was matched by Fidelity. You can do the same. (More on that later.)
Your clients may desire to have a similar good experience with their giving, one that goes beyond tax benefits. It can be done, and in many areas of the country it is easier than you might think.
Even wonderful national organizations like the American Cancer Society or Red Cross that raise millions of dollars from millions of donors personally affected by the organization’s work can seem a bit corporate at times. Most donors do not want their money going to buy stationary or paying a CEO salary regardless of the size or location of the charity.
While there are thousands of smaller, localized charities that do phenomenal work, many face an additional anxiety in which some donors worry that they will support an organization that is on too thin a layer of financial ice and may fail.
One terrific way to address many of these issues is to encourage clients to consider a donor-advised fund. DAFs are like “lite” versions of private foundations: Many of the benefits are similar, but establishing and maintaining a DAF is a lot simpler and cheaper.
Private foundations appeal to many because they are a separate entity, can be named after the family that creates it, and the family can disburse funds to a variety of different recipients. Because the administration, governance, accounting and reporting can get complex and costly, private family foundations are usually only established by wealthier families.
Like a private foundation, a DAF is its own entity and donations to it are tax deductible. Donors need only track the contributions to the DAF for tax purposes, regardless of how many recipients receive grants from the fund.
Donors to DAFs, however, trade having personal control over the grant decisions for the position of “advisor” to the fund. The fund does not have to make the exact grants the donor wishes, and the fund has to have a process to make those decisions that can include considering the donor’s advice but not technically mandating agreement.
In return, the donor gets relief from the hassles of compliance facing family foundations. They can start a DAF with relatively tiny amounts compared to what is need to justify the expense of a private foundation. Donors can still name the fund after their family. Plus, the immediate tax deduction allowed for donations to the DAF is a larger percentage of the gross income than that allowed for private foundations.
Many financial services giants offer DAFs. Fidelity Charitable made 519,000 grants averaging over $4,000 each in 2013, Vanguard Charitable has cut checks to over 142,400 charities in the last decade, and Schwab Charitable paid out $822 million for the 12-month period ended June 30.
This time of year, you are bound to hear more about these funds because their PR departments are particularly active. You should definitely consider them if a DAF is of interest to your clients.
There is no doubt in my mind that DAFs offered by the financial services industry do a fine job even on a local level, but given the tremendous positive impact on donors and their communities from localized efforts, I want to encourage you to look for and at your local community foundation, too.
A Community Foundation (CF) is in the same business as donor-advised funds and private foundations. It makes grants to worthy recipients. One difference is community foundations have intense local focus. Want to know who is doing what for whom in your area in the not-for-profit world? Go see the director of your community foundation.
What you are likely to find is several organizations doing great work that you never would have known about otherwise. Some organizations are new or lacking enough resources to make themselves better known. The governing board of the CF is likely comprised of local leaders, professionals, and business leaders who are keen on making your community better.
Your clients can enhance their financial planning efforts through charitable gifts by establishing a DAF at their community foundation. They can boost their personal impact by getting to know those locals who provide services in areas that are important to them. If they are already involved, your clients may be able to help an organization they care about apply for a grant and get additional funds.
It can be a fantastic experience similar to what has happened to me over the years with the Foundation for Financial Planning. It isn’t just writing a check or donating shares any more. It’s about leverage and impact -- impact on the bottom line of the 1040 but more than that, impact on the recipients and impact on the donor.
To learn more about the Foundation for Financial Planning and volunteer opportunities click here.
To donate or make a pledge to the FFP, click here. (Pledges of $1,000 or more are eligible to be matched by Fidelity and can be paid over 5 years.) To find a Community Foundation near you, click here for the Council on Foundations locator.
Dan Moisand, CFP, has been featured as one of the America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected]