"We developed a family mission statement," Horowitz explains. "We found specific organizations they want to get behind, and then developed grant-making guidelines."
Family or private foundations were traditionally the domain of the super rich because prohibitive set-up and maintenance costs made them not feasible unless a donor had at least several million dollars. But streamlined private foundation programs from the likes of Fidelity Investments and Foundation Source dramatically lowered the costs of creating and maintaining a foundation, with initial investments as low as $100,000 in some cases with the latter outfit. Foundation advantages include complete control over grant making, along with tax deductions of 30% of adjusted gross income for cash donations and 20% for appreciated securities and real estate. Ideally, family members sit on the governing board.
These vehicles have become popular in recent years, as well as charitable-giving vehicles such as donor-advised funds and community foundations. The former enable individuals to invest as little as $10,000 in a fund administered by a nonprofit organization that goes toward specific causes. Donor-advised funds are offered via gift funds formed by large financial institutions such as Vanguard or Charles Schwab, as well as through community foundations, which are nonprofit entities that fund charitable endeavors in a particular location. Their advantages include providing deductions of 50% of adjusted gross income for cash gifts and 30% for appreciated assets, although donors don't have final say over the grant making.
For philanthropy-oriented clients more concerned with tax planning than control issues, Horowitz suggests donor-advised funds and community foundations. For wealthier clients where estate planning and a greater desire for control over their assets are an issue, he leans toward private foundations.
For some clients, there's a trade-off between finding the most tax-effective gifting option and maintaining control over their charity-bound assets. "Part of my job is figuring out the most important priorities of my clients," says Leslie Kelly, director of philanthropy at Charles D. Haines LLC, a financial planning firm in Birmingham, Ala. "A family might require more than one vehicle."
Kelly will pursue philanthropy with clients who show a predisposition by serving on nonprofit boards or doing some form of gifting, even if it's just check writing. If fact finding reveals that a client is interested in possibly setting up a structured foundation involving the entire family, Kelly joins them on a family retreat aimed at fleshing out their goals and attitudes. One retreat took place in the parlor of a family's church, which was convenient for all the family members. Often, retreats take place in a family member's home. "They don't have to be elaborate," says Kelly, "but it must be a situation where the cell phones are turned off and there's a real commitment to that time because you don't want to rush this process."
Kelly uses a technique called a genogram, a variation of a family tree where participants open up and tell stories about their upbringing. It starts with both the husband and wife discussing their experiences and the values that mattered to their families, leading to stories about their parents, grandparents and siblings. Then the children share their stories, as do their spouses if the in-laws are part of any foundation that might arise from this process.
"It can be a pretty intensive and time-consuming process, but it's a great deal of fun," says Kelly. From these stories Kelly listens for key words and values that matter to the family, and synthesizes them into ideas that channel the gifting toward causes that resonate with their core beliefs.
If a family thinks that creating a private foundation is the proper course, Kelly helps them develop a vision and a mission for the foundation. "You must focus on what really matters," says Kelly. "You can't be all things to all people."
Economy Hurts Giving
Following healthy upticks in total charitable giving in the United States during the last bull market, philanthropy levels leveled off during the subsequent down years of 2001 and 2002 (the most recent data available), according to the American Association of Fundraising Counsel. Anecdotal evidence from advisors indicates that giving rose a bit last year, but that munificence isn't totally back in vogue.