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Family Charity ‘Tool Kit’ Can Make Donating More Effective

For many post-war entrepreneurs the time is rapidly approaching when a new generation are leading their companies.

Often, for estate planning, to ease tax burdens and other reasons, many of these entrepreneurs and their successors are looking at establishing charitable trusts.

Giving money intelligently can be a daunting task, paralyzing some people while causing others to scatter their donor dollars by simply following emotional whims.  Neither approach leads to great results.

Eileen Heisman, President and CEO of National Philanthropic Trust, advises donors to lead with their hearts, but she also stresses the wisdom of having a charitable giving plan.

“I dream grand, and I dream practical,” Heisman says. “Unlike a lot of dreamers, though, I see the questions and challenges. Is philanthropy merely a transaction? I say no, because you cannot take the heart out of what makes people give. It is a way of touching people that is fundamentally different than a pure financial transaction.”

Tips for donors

She says that developing a family charity “tool kit” can be a simple yet rewarding process, if donors follow a few easy tips:

Think like an investor: Charitable choices can and should come from a place of instinct and emotion, guided by goals for what type of “return on investment” people would like to work toward. They won’t earn a dividend, but should think of their choices as making investment in effecting social change.  Do they want to have a major social impact, leave a legacy, or simply “give back?” Thinking through goals can help ensure that where a person’s heart leads will produce meaningful outcomes. “I believe we share a common interest in making this world a better place,” Heisman says.
Understand the metrics: Every nonprofit organization has a social-impact goal, and each has its own way of measuring the success of its programs. A soup kitchen can measure success based on the number of people fed, but how do people measure a goal like helping people break free of the poverty cycle? Outcomes are harder to measure in the short term, but people shouldn’t let that deter them from tracking the outcomes. Understanding the long- and short-term success metrics of chosen nonprofits will help people align their goals accordingly.
Get familiar with the tools:  A checkbook isn’t the only giving tool in a tool kit. Depending on the assets and goals, there are a variety of other giving vehicles that can help people reach their philanthropic goals. Learn about planned giving vehicles such as charitable trusts, charitable gift annuities, pooled income funds, lead trusts, private family foundations, and donor-advised funds.
Bring it into focus: Peoples’ heart may be as big as the world, but their budget probably can’t solve all the world’s problems. So, concentrate charitable giving on a select few favorite causes.  By allocating more dollars to fewer nonprofits, people can help ensure the success of those programs.
Make a commitment: The longer people commit to a chosen nonprofit, the more they can help that organization succeed. Long-term commitment can help charities continue good works through economic downturns and other conditions that may affect them. Remember that few intractable problems can be addressed in short sprints; think more in terms of a marathon.
Charitable giving is really a part of who we are as a country and a culture,” Heisman says. “Throughout our history, we’ve seen that people want to participate, no matter their income level. It’s just an amazing part of who we are as a society.”

Tips for advisers

Heisman offers these key points for advisers who are helping clients to create a charity tool-kit:

Think like an investor (with a heart):  Show clients how to research charitable organizations and determine their credibility, efficiency, and effectiveness. Often, charitable choices begin with instinct and emotion. Advisers can help their clients by asking questions about what’s important to them and their families and what type of impact they’d like.  Do they want to make a positive social impact, leave a legacy, or simply “give back”? The answers can help guide adviser and client in making appropriate charitable investment decisions.
Understand ROI:  Without proper guidance and understanding, many donors are likely to fall back on poor indicators of a nonprofit’s performance or have unrealistic expectations of the extent or immediacy of impact their dollar should make.  Advisers should be sure their clients understand that measurement metrics vary greatly depending on the type of charity and the social problem it seeks to address.  They should help clients understand that they can’t look for a return on investment in the same way as they might expect to see a dividend; social problems are not stocks. The number of people fed by a soup kitchen is one simple, fast metric, but not all nonprofit work can be summed up so neatly.
Learn about giving tools:  Help clients learn when checkbook philanthropy makes sense, and when it’s time to look at other tools such as grants, foundations, charitable trusts and donor-advised funds. Give clients a good understanding of the benefits, requirements, and even the costs, in some cases (private foundations and charitable trusts carry regulatory requirements that can create administrative and management costs), of different types of giving vehicles. Work with clients to help them define their family goals, aside from their charitable goals. Are they looking to leave a family legacy? How best can they achieve that?
Budget for the long haul:  Charities also suffer during economic downturns.  Clients can help their favorite nonprofits by committing to them for several years. This strategy can also help them see a greater “return” on their investment in a given charity. In addition, be sure to talk to  clients about unrestricted giving. Unrestricted funds can help nonprofits survive the economic roller coaster and ensure that they can continue with their good works.
Focus charitable dollars: Rather than sprinkle limited funds across many nonprofits, ensure that the clients’ charitable dollars have the most impact by advising them to invest in a select few favorites. Though potentially a painful decision-making process, it can result in both adviser and client’s having a clearer vision of their philanthropic goals and a stronger strategy for meeting them.

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