Philanthropic giving can be a component of wealth management and estate planning for all individuals and families – regardless of the size of their portfolio. Through your philanthropic efforts, you can support causes that are important to you and your family, make a meaningful impact on your community and leave a legacy for future generations. The benefits of every level of philanthropy can be truly far-reaching – for both the donors and the recipients.
Do you have to be as wealthy as Bill Gates or Oprah Winfrey to be a philanthropist? Absolutely not. Even modest gifts can make a big difference. Here are some things to consider as you embark on your philanthropy journey.
Philanthropy vs. charity
Charity is usually a one-time donation made in response to an immediate need, such as shelter or food or medical assistance. Charitable contributions are often emotional or empathetic and provide short-term relief – like donating to a natural disaster relief or emergency response fund. Charitable donors usually don’t enter into a long-term relationship with the organization.
Philanthropy, on the other hand, is a much more strategic – and personal – undertaking. Instead of short-term fixes, philanthropy aims to have a long-term, sustainable impact by identifying and addressing the root causes of systemic societal issues – everything from addiction and poverty, to racism and environmental causes. Philanthropy tends to extend beyond simple financial support to include advocacy and working with stakeholders to effect lasting change. As a philanthropist, you’re committed to the cause you’ve chosen to support for a variety of reasons, usually based on your aspirations, values and an intent to make a difference to a specific issue. Through effective estate planning, philanthropists often ensure that that commitment continues long after their death.
Why should you give?
People opt to include philanthropy in their wealth management or estate plan for a variety of reasons:
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Maybe the desire to give back is founded in your strong belief in the importance of making a difference by engaging in worthwhile projects – also a valuable practice to pass on to future generations.
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Some philanthropists feel that they have an obligation to share the wealth that they have had the good fortune of accumulating.
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Still others may have a connection to a particular cause or organization that they would like to support. For example, a loved one might suffer from a rare medical condition that needs funds, advocacy and awareness to find a cure. Or perhaps you are dedicated to enabling education for girls in areas of the world where such opportunities do not normally exist.
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Wanting to leave a legacy might motivate you to consider including philanthropy in your estate plan. Though you will not experience the benefits of your generosity during your lifetime, the impact of your giving will continue to be felt for years to come.
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Philanthropy could also be a family tradition – perhaps your parents or grandparents carved out a portion of their wealth for philanthropic endeavours and you would like to carry on what they started. In doing so, you would also be modelling philanthropy for your own children and grandchildren.
Take a deliberate approach
“You would think that each person knows what they want when they get involved in philanthropy, but that’s not the case. In fact, Warren Buffet has said that it is easy to donate money, but very difficult to do it well. People don’t know how to give. They must first determine the values, areas of interest, and aspirations that will be reflected by their donations. They must choose a mission, a goal. This is the part that is complex, but it’s also the first thing you must do to become a philanthropist”, says Marvi Ricker, Managing Director, Family Philanthropy and Legacy, BMO Family Office.
It could be that you are part of a family wanting to engage the next generation into a legacy of giving. Or perhaps you’re an individual looking to give to causes that align with your values and are seeking to make a lasting impact on the world. Regardless of the inspiration behind your philanthropy, it’s important that you take the time to assess what is driving your decision and what your philanthropic aims are before you decide where and how to give.
Identify the causes you want to support
Deciding how to allocate your philanthropic dollars and efforts is likely one of the biggest decisions you will have to make. Start by asking yourself some questions. What causes are important to you, your family and your community? What do you care about deeply? Where is the need the greatest? How would you like to be regarded today – and remembered in the future? You should also analyze your past charitable giving behaviour. Going through this process will help identify where your passions lie and the type of organization(s) you would like to be associated with.
Choose the recipient organization wisely
Once you’ve identified the type of issues and causes that you would be interested in supporting, it’s important to do a deep dive into the operations of organizations in those areas. How are they using the donation dollars they receive? What will be the “return” on your investment? Don’t limit your research to determining the amount the organization spends on administration. And consider casting your net wide – there are many small and local organizations dedicated to worthy causes that may not be on everyone’s radar. Chances are, your support could be even more impactful to these organizations.
Decide how you want to give
There are a number of different ways that philanthropists can channel financial support to their preferred charitable organizations. How you choose to proceed will depend on your individual circumstances. Do you want to incorporate philanthropy into your current wealth plan? Or is it something you’re leaving for your estate? Note that the federal and provincial governments provide tax incentives that encourage Canadians to give generously. Your tax advisor can help you determine the timing and nature of your donations to maximize the tax benefits.
While the most common way of supporting causes is through gifts of cash, you can contribute virtually any asset – from appreciated securities (a tax-efficient vehicle) to life insurance benefits. If you want to take a longer view approach, one way would be to create a donor advised fund through which you can make annual grants to your favourite organizations.
This was the mechanism that was recently chosen by a Charlottetown widower and businessman who was looking for a way to maximize the tax benefits of his charitable giving goals. Lydia Potocnik, Head, Estate Planning and Philanthropic Advisory Services, BMO Private Wealth, was part of the BMO team that helped set up the fund in his and his late wife’s names. “This was an opportunity to also get to know the next generation and align the family’s values with their philanthropic goals,” she says. “After weighing their options, [he] decided that creating a donor advised fund with BMO was the best vehicle to create a legacy honouring the memory of his late wife and an opportunity to give back to the hospital that provided outstanding care for her.”
Another option is to create a private foundation. This is a good choice, Potocnik explains, “if you want to involve your children in philanthropy and really give meaning to your wealth while also influencing change within certain sectors, such as healthcare, the environment or education, to name a few.”
Most importantly, Potocnik continues, would-be philanthropists must take a careful look at their unique situation and seek advice before deciding which mechanism will work best to help them move forward and reach their goals.
Is your philanthropic interest piqued? There’s no time like the present to include philanthropy in your wealth management plan. Get started by:
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Putting philanthropy at the top of your to-do list – start talking about your plans with your family
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Reviewing your current charitable giving priorities to get a sense of the types of causes that have appealed to you in the past
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Meeting with your Wealth professional to discuss your giving options and determine next steps
At BMO Private Wealth, we have a team of philanthropic consultants as part of our Philanthropic Advisory Services.
For more information, contact your BMO Private Wealth professional.
References:
Strategies for smarter charitable giving
Charity vs. philanthropy: How are they different?
How to incorporate philanthropic giving into your estate plan
How you can create a philanthropic legacy without being ultra-rich
BMO Private Wealth podcast
BMO For Women podcast
BMO Private Wealth provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Private Wealth cannot guarantee the information is accurate or complete. Individuals should contact their BMO financial professional for advice regarding their personal circumstances and/or financial position. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.
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| Regardless of the inspiration behind your philanthropy, it’s important that you take the time to assess what is driving your decision and what your philanthropic aims are before you decide where and how to give.
