Key takeaways
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What is philanthropy and how does it differ from charity?
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The benefits of philanthropy for you, your family, and your community
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Some considerations to keep in mind before pursuing a philanthropic strategy
What is Philanthropy?
“Giving money away is easy. Giving money away well is fiendishly difficult.” Those words by renowned businessman and philanthropist Warren Buffett perfectly encapsulates the essence of philanthropy and its growing importance in today’s world.
In fact, according to the latest report from Wealth-X, in 2020, philanthropic giving around the world totaled approximately US$750 billion, with the ultra-wealthy giving US$175 billion to philanthropic causes. North American ultra-wealthy donors, meanwhile, accounted for more than half of all ultra-wealth donations worldwide.
That’s a significant sum with tremendous capacity for effecting change. Philanthropic causes can prove invaluable in helping alleviate pain and suffering while addressing social and environmental issues head-on. Whether tackling climate change, educational reform, food insecurity, healthcare or affordable housing, philanthropy has carved a formidable role to play.
What makes the rise of philanthropic giving all the more interesting is that its donors comprise an ever-expanding ecosystem made up of corporations, public and private foundations and a growing number of wealthy individuals intent on using their money to make a difference.
It’s a reality that I know well. As Managing Director of Family Philanthropy and Legacy at BMO Family Office, clients typically approach me with a broad request: How do I leave my mark on this earth in a way that matters to me? After working together for some time, those same clients eventually experience a paradigm shift of what’s possible. They learn how to become a philanthropist, one driven by their personal values and interests. And they come to understand how their generosity can impact the lives of so many – including their own.
Charity vs Philanthropy – Key differences explained
We’re witnessing a growing interest in philanthropic contributions of late. And it’s not hard to see why. Challenges in our communities and around the world are ever-increasing while income inequality is on the rise. Many affected by the realities on the ground are looking to make an impact with their wealth. Tired of traditional giving, they’re drawn to new, innovative ways of giving back. Plus, it’s tremendously rewarding.
So, what exactly is philanthropy and how does it compare to other giving initiatives like charity? To be sure, both charity and philanthropy use time and/or money to help people or a cause. Not surprisingly, many engage in charitable giving while also pursuing a more strategic philanthropic involvement. But there are distinctions worth noting.
Charity is typically an emotional response, a desire to help. Whether giving once or year-over-year, the intent is to bring (oft-time urgent) relief to a situation that requires it. You may give money to the Red Cross, for example, to support victims of the war in Ukraine. Or donate meals to the food bank during Christmas. You can also become a monthly donor at your local hospital as a thank you for the great care provided to a family member during a recent stay. Charity comes from the heart and can do a lot of good.
Philanthropy, on the other hand, dives into the root causes of society’s intractable challenges and tries to find solutions. It’s a reflection of a person’s values and aspirations and involves significant processes and engagement. It’s an expression of who you are and what you think is important, versus writing a cheque.
What does modern philanthropy look like?
Now that we understand the philosophy behind philanthropy and what makes it distinct, we can better appreciate its breadth too. There are many forms of philanthropy, all of which fit (somewhat) neatly within its broad definition.
Perhaps you want to incorporate philanthropy into your current wealth plan. Or maybe you feel more comfortable leaving it for your estate. Though many choose to support a cause through cash gifts, you can actually contribute a variety of assets – from appreciated securities to life insurance benefits. Adopting a longer-term outlook, you can even create a donor-advised fund.
But the most attractive philanthropic strategy is starting a private foundation, a legal entity with a life of its own. If you don’t want to give your money away all at once, preferring to give it over time, the foundation offers a perfect opportunity to do just that. Keep in mind that your money grows tax-free within the foundation.
A foundation is an ongoing engagement in something a person is passionate about. It’s a thoughtful and personal reflection of someone’s values, interests and aspirations. Which explains its popularity. But, considering the tremendous need that exist today and the heightened desire to use wealth for maximum impact, there’s also a greater emphasis on measuring the impact of foundations too.
The goal is to ensure that everyone is moving expediently and efficiently toward their objectives. Of course, the measurement piece is not always easy. Many have introduced tools for greater precision and data analysis into their giving practices to ensure more successful outcomes. It’s about melding heart and head, infusing practicality into purposeful giving – and it’s working.
Some Considerations: Is philanthropy right for you?
Aside from the funds, philanthropy necessitates passion for a cause. If there’s a burning issue close to your heart, you (or a family member) may be determined to take it on. But to make philanthropy a real success — particularly if it involves setting up a foundation – you need time and commitment.
Running a foundation takes some work and effort so it’s important to be honest about your capacity. If you or a family member do not have the hours to dedicate to the organization, charitable giving may be the better route. Of course, when it comes to administrative help, your financial professional can prove helpful too.
The Rewards of Philanthropy
Lending credibility to a cause is one of the greatest draws of philanthropy. But there are other benefits too. It gives you a vehicle to pass your legacy onto the next generation. It allows you to teach your children the importance of wealth and the responsibility of what goes with it. But the strongest argument in favour of philanthropy seems to be the purpose and meaning it provides.
With wealth disparity growing, more clients are seeing the true value of giving in bigger and more impactful ways. People are changing their perspective of wealth, with purpose as their guide. And that purpose can be contagious.
Philanthropy has become a powerful part of the BMO Family Office’s offering. It goes well beyond discussing a financial plan. It’s about asking what wealth means to you, and how you’d like to use it today or in the future.
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