A series on how to manage and transfer your wealth well: Part 1
We are amid the largest wealth transfer in history
Did you know that Canadians are living amid the largest wealth transfer in history? In America, the Baby Boomers are preparing to give away upwards of $80 trillion in wealth to succeeding generations. That’s right: with a T. In Canada, some estimates put the amount of wealth to be transferred over the next decades at about $1 trillion. That is still a staggering amount of money.
In our work, we’ve met with many Canadians who want to be thoughtful about their wealth. Many find themselves in a position they never expected. They bought real estate decades ago, or became unexpected winners in the global economy, inheriting homes or cash from their own parents or grandparents. Some are the same people who scrimped and saved as the children of immigrants, or moved to Canada with little as immigrants themselves; dressed their kids in hand-me-downs; or worked the same job every day for 40 years. The homes they bought, perhaps modest by the standards of the day, have exploded in value and their frugality has turned into money in the bank.
They are the unexpected millionaires. High-net-worth individuals who never expected to fall into that category. Perhaps they still don’t realize that they do.
These folks have an unprecedented opportunity to use their wealth to benefit charitable causes while still leaving generous inheritances to their families. And they are asking, how can I give away my wealth well?
Many unexpected millionaires come by the question honestly. If they didn’t grow up in high-net-worth families or around other wealthy people, they may not understand how to approach giving away their assets. Some may still have a scarcity mindset from years of saving (for some, that’s the mindset that helped them gain wealth in the first place!). Perhaps they are used to giving smaller amounts to charities over time, and are simply not aware of the transformational effect they could have by strategically giving large gifts.
We are excited for the unexpected millionaires among us! Your hard work and good fortune have come together in ways that enable you to do enormous amounts of good. And we want to help you do it with joy.
Why we recommend giving away wealth in your lifetime
In Part 2 of this series, we’ll look specifically at different ways to give money away. But before we get into the nitty gritty, we want to share why we at Cadence recommend donors focus on giving away money in their lifetimes.
At the moment, millions of charitable dollars are sitting, invested but otherwise unused, in foundations which may take the forms of endowment or donor advised funds. We recognize the benefit of this: it allows gifts to be paid out in small amounts in perpetuity, ensuring that charities will be funded for the long run.
The problem in our eyes is that when people manage charitable giving like they approach other types of wealth, they – and the world – miss incredible opportunities to, as a 2023 blog post from the National Christian Foundation put it, “be radically generous while we’re living.”
The main difference between keeping your charitable dollars invested in foundations and dipping into that principal to make larger gifts is that, unlike other types of investments, money in charitable endowments or charitable investment funds is no longer part of your personal net worth. It is not analogous to other investments, as it will never “return” back to you as greater wealth. The ROI with charitable dollars is impact, something that cannot be achieved by dollars sitting in a bank account.
Consider the benefits
Instead, choosing to give away money in your lifetime instead of keeping it in a foundation or other charitable entity has many benefits:
- You get to partner with organizations and see results. When you donate during your lifetime, you get to see firsthand how your donation is making an impact on those who need it most.
- You get to make an even bigger impact. By giving larger gifts instead of just 3.5% of investment income, you can potentially offer transformative support for charities that can change the course of an organization’s trajectory and amplify their effectiveness.
- You reduce the risk of your charitable dollars meandering away from your original purpose and passion.
- Canadians need more charitable dollars today. Reports say that Canadians need donations now more than ever before. By giving away money during your lifetime, you can provide much-needed support for individuals currently experiencing acute needs, perhaps alleviating some of the charitable needs in the future that those “in perpetuity” funds are set aside for.
This does not mean that all charitable investments are bad. We believe endowments have their place. For example, an endowment to pay an Executive Director’s salary can give an organization the long-term stability they need to be responsive and adaptive over the long-term.
But the benefits of giving away your money while alive are potent – and exciting!
Regardless of your thoughts on this particular point, our bigger task remains: what options do unexpected millionaires have for giving their money away? In our next post, we’ll demystify the many options, and share a few of our thoughts on how to approach philanthropy well as an unexpected millionaire.
Does this post describe you? We’re here to help! Drop us a line to talk about ways to leverage your unexpected wealth for the greater good today.
Photo by Dario Valenzuela on Unsplash
