Deciding how to give away money is no longer a simple matter. But numerous vehicles exist to help a philanthropist achieve the most impact and the highest personal benefit.

Philanthropists obviously receive tax benefits from making their donations, but that is not the biggest consideration for many of them, according to Drew Rabe, managing director of Washington, D.C.-based Arabella Advisors, a firm that helps clients navigate the ins and outs of giving. “There are legal, financial and operational considerations that factor into decisions about how to give, but there is also a deeply personal side that revolves around what a client cares most about and the kind of change the donor wants to effect,” Rabe says. “Decisions about philanthropic vehicles often follow from those personal considerations.”

There are a number of things that determine how a person will give. It depends on how much control they want to have over their contributions, whether they want to give locally or globally, and whether they are looking for a long-term impact or to solve a more immediate problem.

The giving vehicles people choose are determined by how deeply the givers want to get involved with organizations or a cause, says Renee Karibi-Whyte, senior vice president at Rockefeller Philanthropy Advisors, a consulting and research organization based in New York City that manages philanthropic planning for both advisors and donors. These givers might want to pursue simple checkbook philanthropy, or perhaps set up trusts, donor-advised funds or private foundations—or get involved with some other type of collaboration.

Karibi-Whyte says the goals of philanthropists have changed in recent years and today they put more emphasis on social justice and equality. Such shifts also affect their giving vehicles, since the donors want to see the long-term effects.

She has also seen an increase in unrestricted giving—when donors give charities discretion over how to use the funds for their most pressing needs. Most of the information is anecdotal, but the Center for Effective Philanthropy recently estimated that about 20% of giving had no stipulations about how the money was to be used.

Charitable organizations have learned the value of transparency and they are paying more attention to communicating about what they are doing, Karibi-Whyte says. Rockefeller has developed a philanthropy road map showing people how to align their family goals and be more purposeful in their giving.

Some donors are even bringing an entrepreneurial outlook to their giving, says David Winslow, managing director of Choreo, a financial services firm based in Charlotte, N.C. “Venture philanthropy has taken hold today for donors who are trying to solve large and ingrained societal issues,” he says. “These donors have a business mindset targeted to solving a basic problem and having a bigger, longer-term impact.”

The Right Vehicle For The Right Giver
There are a number of vehicles that philanthropists can use.

The type that’s seen rock star growth is donor-advised funds. In these vehicles, donors receive an immediate tax benefit for setting aside money, which can then be invested and grow until needed. The money is then available for grants when the right opportunity to help presents itself.

According to National Philanthropic Trust’s “2021 Donor-Advised Fund Report,” charitable gifts to donor-advised funds increased 20.6% in fiscal 2020 over 2019, the two most recent years for which data are available. Total grants from these funds grew 27% in 2020 to a total of $34.67 billion, equivalent to 7.4% of total giving in that year. This increase is the most substantial year-over-year increase in grant-making from donor-advised funds. The report found that other metrics increased in fiscal 2020 from the previous year as well, including the total value of donor-advised fund assets, which increased by 9.9%, and the total number of the funds’ accounts, which increased by 16.3%. The number of individual donor-advised fund accounts passed one million in 2020.

Fidelity Charitable, which oversees donor-advised funds, has clients who also set up private foundations outside Fidelity. Colby Bircher, vice president and charitable planning consultant at Fidelity Charitable, says that among its clients, the use of donor-advised funds seems to be more popular than creating foundations. This could be because “foundations are powerful giving vehicles but can be costly and time consuming to maintain” when compared to donor-advised funds, according to the National Philanthropic Trust.

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