Strategic and organized philanthropy can be a powerful tool to help wealthy families pursue their twin objectives of giving back and building a legacy. Foundation Source, the nation’s largest provider of back-office and advisory services for private foundations, recently released its 2022 Report on Private Philanthropy which noted several strong years of giving as philanthropists scrambled to address new and changing needs. I spoke with Foundation Source CMO, Hannah Shaw Grove to get a handle on what to expect in the year ahead.
Russ Alan Prince: The past three years have brought a wide range of new needs to light. How has that set the stage for high-net-worth philanthropy in 2023?
Hannah Shaw Grove: We saw some pronounced trends over the past three years that will certainly shape how families think about their giving. 2020 brought new and unexpected needs with the pandemic and racial justice concerns, and many of our clients revisited their missions and explored new types of grants in order to address the most pressing needs. 2021 had a very different character that felt like recovery, due to the progress with vaccine approvals, schools reopening, and strong equity and crypto markets. One of the by-products of the environment was the high levels of giving. We saw foundations granting more dollars than in previous years, but also fewer grants that allowed them to concentrate their impact. It was also an environment that allowed people to revisit their core missions, which shared the spotlight with the health and human services needs that arose during the beginning of the pandemic.
2022 brought a fresh set of dynamics that have impacted how people think about their capital and their philanthropy. They’re almost too numerous to list, but we saw a rapid response to the Russia-Ukraine conflict, with our clients giving nearly $10 million to Ukraine-related causes in the first few weeks after the ground invasion. As difficulties have continued to mount in the form of record-high inflation, rising interest rates, the energy crunch in Europe, supply chain issues, market declines, and a looming recession, we saw thoughtful grantmaking as foundations checked in with their grantees to see where and how they could be of best assistance. And, of course, in years with negative market performance, many foundations use their excess grant carryovers to help offset or meet their minimum distribution requirements to give themselves more latitude in how they manage their endowments.
Prince: Looking ahead, what do you expect to see in private philanthropy in 2023?
Grove: Well, there’s a sub-segment of foundations that always give a lot regardless of market conditions. And there’s another sub-segment that tends to modify their giving based on their portfolios and that group may reduce their giving this year in response to last year’s market performance.
Every year there are more and different needs. If the past is prologue, we expect philanthropic families to challenge themselves to respond quickly and creatively. For many families, these are teachable moments that allow them to discuss, say, social needs or geopolitical situations with one another in order to develop an informed and cohesive view of how they want to respond, what they can do, and how they will measure success. The idea is to balance long-term strategic support of their missions with more responsive support for critical and time-sensitive situations.
Prince: The tension between long-term goals and short-term needs is always a challenge When there’s a defined budget for charitable giving, how does a family find the right balance?
Grove: Understanding the intersection between issues is one way. For instance, if a family’s focus issue is animal welfare that doesn’t mean they shouldn’t provide aid in the aftermath of a hurricane. Many animals get separated from their owners and need shelter and care during and after natural disasters, and it’s a matter of finding the connection that works for your mission. It helps to look at each specific situation through multiple lenses, say education or diversity or healthcare, to see that there are many opportunities to support and advance a mission. And often in places you’d least expect.
Prince: What about driving and measuring impact?
Grove: There’s an experimental nature to what many family foundations do as they find their footing as philanthropists. There are many ways to pursue a mission and effect change. For instance, if a family wants to support education in the community where they live and operate a business, they could select a few specific causes to support like an after-school program or a STEM initiative, or they could run direct charitable activities like an academic enrichment camp. They could give scholarships to local students. Or they could work with a community foundation that is already established in the area.
The options are virtually unlimited and should be informed by the family’s interests and priorities. It’s a good opportunity for multiple generations in a family to work collaboratively as they brainstorm and explore how they want to support the community, and then stay involved with site visits, meetings, grant decisions, and volunteering. It’s a practical way for families to define their values and build a legacy. Usually, the right answer is a combination of activities that have been tested and refined by the family together.
Prince: How should wealth advisors and family offices think about working with high-net-worth families on their charitable plans in 2023?
Grove: I have a couple of ideas on this – the first is that philanthropy is often about giving back, but for many families, it’s also about expressing their values and building a family legacy that can last for several generations. As such, advisors and family offices should be part of those conversations so they understand how and why the family is motivated and can bring relevant solutions to the table. Secondly, when philanthropy is part of a holistic wealth management approach it allows for closer alignment with any efforts around tax mitigation, wealth transfer, investment strategy, and cash flow planning. When those activities are coordinated tightly it ensures that a family’s donations can be more strategic and potentially have a greater impact on both the giver and the recipient. And, of course, this level of synchrony can help advisors build deeper, indispensable relationships with their clients.
My final thought is that if your clients are regularly making charitable contributions and are ready to consider formalizing their philanthropy, it may be time to consider a private foundation, a charitable trust, a donor-advised fund, or a combination of vehicles. There are advantages to all three that can help a family give tax efficiently and strategically in the context of their personal values and their wealth management objectives.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.