A series on how to manage and transfer your wealth well: Part 2
In our first post in this series, we talked about the unprecedented opportunity for a new generation of unexpected millionaires to make a real difference in the world.
Now we tackle the big question: how?
There are a number of ways to manage large amounts of charitable dollars. Here is a simple guide that can help you understand the pros and cons of different models. Of course, every situation is unique, so don’t hesitate to reach out if you would like a referral to trusted, personalized advice for you and your family!
Set up a Donor-Advised Fund
Donor-Advised Funds (DAFs) have exploded in popularity in the last decade. Essentially, they are like a charitable bank account: you invest a large sum of money in them, then direct how the interest and principal are spent out to charities when it is convenient for you.
On the pro-side, DAFs are simple to use and tax effective. You receive a tax receipt immediately upon depositing funds in the DAF, not when they are distributed. Regardless of net worth, they can be a way to set aside charitable dollars on a regular basis without having to decide immediately where they go. Finally, DAFs mean you always have money set aside to respond to needs as they arise. This can give you greater flexibility with your charitable dollars.
The con, as we talked about in our first post, is that your dollars can be far more effective in the hands of the actual charitable organization than waiting for you to distribute them. In addition, the motivation to give the money away can lessen once you already have a tax receipt in hand.
Call us to learn more about DAFs and get connected to a fund that may be right for you.
Create a foundation
Foundations can be powerful tools for distributing large amounts of wealth to charity. Private foundations are often funded with family wealth which is distributed to registered charities or other ‘qualified donees.’ This can include municipalities, school boards, and many other organizations. Some foundations pay only the minimum required annual amount in donations. This ‘disbursement quota’ has recently changed, but it ranges from 3.5 – 5%. Others might pay out all of their principal over a set amount of time.
There are many positives to setting up a foundation. They can be high-profile and effective over the long-term. They give you a strategic way to give gifts to multiple charities focused on similar areas of impact. They are often family-based and can become a passion project that binds people together and teaches philanthropy to future generations.
But the cons are similar to a DAF. Foundations can tie up potentially larger gifts in favour of smaller payouts over time. This means they are particularly susceptible to “drift”: after your lifetime, you have little control over how a foundation’s charter is interpreted and where funds are distributed.
Setting up a foundation? We can help!
Plan legacy gifts
Many charities offer simple ways to leave a gift to them in your will. Treating a charity like another heir is a beautiful way to leave a legacy that honours your memory after you are gone and highlights a cause you care about. Gifts go directly to charities and are put to use immediately. Legacy gifts can also inspire other donors to share their wealth beyond their family members, and can inspire friends and family to give in your memory to charities you love.
The major drawback of a legacy gift is that you are, by definition, not around to see your money at work! There can also be issues around how your legacy gifts are outlined in your will. For example, if you are planning on giving a percentage of your wealth to a charity, consider the potentially complex position you are putting your executors in if the charity requires proof of the value of the estate.
Are you a charity looking for help setting up a legacy giving program? Drop us a line.
Give “grants” to your children
As an unexpected millionaire, you have a unique opportunity to equip your children with a philanthropic mindset that will become part of your generational legacy.
Consider setting aside some of your charitable dollars to give a “grant” to each of your children – from teenagers and up! Give them specific instructions that the funds must be used for charity, either generally or of a specific type. Perhaps share with them how you make giving decisions and talk through how to vet responsible organizations. You can also spend time asking them what causes and types of giving speak to their own hearts.
This process has a few benefits. It prepares your kids – the next generation of givers – to think philanthropically. It can spark generosity in people who will likely inherit significant wealth. It helps your heirs develop the specific skill set needed to give money away well. And finally, by working together for a shared purpose, you can create treasured memories and stronger bonds.
The downside is that you have to give up some measure of control as to where the money actually goes. Your kids or grandkids might choose a charity that under-delivers or is not accountable to the funds, or to a cause you don’t care much about. But these can all be part of a learning process that can develop smart, intentional givers for generations to come.
Four things to consider when giving a large gift
Regardless of how you end up giving, here are a few final tips that can make any type of generosity more fruitful!
- Have a strategy
When it comes to giving, our first thoughts are often: How often? How much? Bu before you ask these questions, start with “why?” Figure out the impact you want to have first, then create a strategy to best meet that bigger goal.
- Don’t forget accountability
Work with charities with a track record of transparency and accountability. Expect open communication about how your money is used and if the charity needs to pivot. Don’t be afraid to get both your and the organization’s expectations in writing!
- Get your hands dirty
Are there ways to support an organization you are giving money to beyond funding? Maybe you can participate in their charity run, join the board, go serve dinner at their community cafe, or host a table at the gala. This kind of multifaceted partnership can offer a more profound experience of generosity, in which your hands-on work can directly further the impact of the organization.
- Have fun
Giving can be transformational for a recipient, but it is also formational for the giver. You may have found yourself with unexpected wealth, which can feel like a huge responsibility. But it is also an exceptional opportunity to experience the joy of giving and the way it shapes your heart to be in service to others.
Happy giving, unexpected millionaires!
Photo by JP Valery on Unsplash