Give Til It Hurts

October 3, 2008

Give Til It Hurts - By Hannah Shaw Grove , Russ Alan Prince - 10/3/2008

The twin benefits of charitable giving-supporting a cause and minimizing taxes-have long held great appeal for the moneyed crowd. In an effort to understand how actively the wealthy are involved in the stages of the giving process, we surveyed 446 individuals with a net worth of $5 million or more and a history of giving at least $50,000 a year to non-profit organizations.

One of the first issues that surfaced in our study was how much authority and control affluent givers want in the selection of the charities they support and, then, how the contributions are used. Almost three-quarters of survey respondents characterized themselves as wanting a high degree of both-we refer to them as high-influence givers. By contrast, the remaining quarter were less interested in participating in the process-low-influence givers (Exhibit 1).

Typically, most charitable gifts-regardless of the total wealth of the donor-can be considered "checkbook philanthropy," meaning monetary gifts made in response to fundraising requests or one-off situations such as benefit events and auctions. While this form of giving is no less important, it often occurs without much advance thinking or planning and may not allow either the donor or the charitable organization to benefit as much as possible.

To ensure maximum effect, many wealthy individuals have begun planned giving to structure their philanthropic activities. More than half of our survey participants had already established a planned gift, but there was a greater disparity when viewed by segment. About two-thirds, or 62%, of the high-influence individuals had established a planned gift, while just 39% of low-influence givers had done so (Exhibit 2).

There is no question that the planned giving process can yield numerous benefits, but it can also be an emotional experience as it often forces givers to face issues related to estate planning and mortality. It is also highly complex, requiring the expertise of financial and tax professionals to navigate smoothly and successfully. In an effort to understand the motivations driving our survey participants to planned giving, we asked the 247 wealthy individuals with planned gifts a series of questions.

The opportunity to proactively reduce taxes was of material importance for 87% of high-influence givers, but far less significant to low-influence givers. Just 35% of that group cited tax implications as one of the major drivers in their decision to establish a planned gift (Exhibit 3).

A large portion of both segments, however, cited a broader planning effort as playing a principal role in their decision to create a planned gift. Of high-influence givers, 97% said the planned giving process was part of a broader effort that focused on financial planning, estate planning or both, as did 90% of low-influence givers (Exhibit 4). While the results are similar across segments, the rationale is likely different - high-influence givers often want a similar level of involvement in all their financial affairs and philanthropy is treated as an extension of a bigger initiative, whereas low-influence givers see the planned giving process as a way of taking action now to reduce the need for involvement down the road.

There are a number of products and vehicles for the charitably inclined to consider and our survey respondents have used all of them, but a few methods are more prevalent than others. The most popular vehicle for high-influence givers was the charitable remainder trust, with 60% having established one. The second most frequently used structures were private foundations and supporting organizations, used by 34% of high-influence respondents. By contrast, almost three-quarters of low-influence givers used a simple will bequest as the way to structure their charitable gifts.

Donor-advised funds were the second most frequently used vehicle, established by 29% of the low-influence segment (Exhibit 5).

Charitable lead trusts, life insurance and charitable gift annuities were also used by a portion of our survey respondents, but at much lower levels than the vehicles cited above.

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