Role of Philanthropy

Published: Feb 22, 2022

The Oracle of Omaha, Mr. Warren Buffett, has a strong personal conviction when it comes to leaving an inheritance to his heirs… “You should leave your children enough so they can do anything, but not enough so they can do nothing”.  

My own mother instilled in me a sense of charity…to give back to help others, by supporting worthy causes.  She did not have much wealth to speak of, as a secretary working for the Ontario Government and widow at age 48, but come tax time each year, she had a stack of tax receipts for all the causes she supported.  I learned the joy of philanthropy from her, and so today, I too give to worthy causes, and try to set an example for my own children to understand the honor we get by giving back.

I regularly meet with very successful business owners, and persons with significant wealth, and review the sheer magnitude of their wealth.  Invariably it is far more than they grew up with or ever imagined they would amass.  I always ask about their philanthropic interests, as that question can lead to some very productive conversations. 

Philanthropy offers some great features and advantages to a family enterprise, including:

  • Tax deductions or tax credits for cash donations
  • Tax avoidance of capital gains on the donation of appreciated shares of listed corporations
  • Tax avoidance on the deemed dividend arising on the redemption of private company shares
  • Leveraging the donation effect when donating life insurance policies with a large death benefit
  • Public prestige from making donations honoring the family name on physical structures
  • Creating an ongoing role for the next generations of the family to manage private charitable foundations and donor advised funds and select worthy causes.

Donations to worthy charities can take several forms.  The two most common choices are: 

  • Outright donation – where the funds go to the charity of your choice, or a public charitable foundation
  • Lasting donation – where the funds go into a Private Charitable Foundation (customized specifically for your family), or Donor Advised Fund (where your sub-fund is part of a larger omnibus charitable foundation), and invested for the future, with minimum disbursements to charities your family select made annually. 

The benefit of the lasting donation option is that, while you still get the tax benefit for the contribution in the year it is made, the donated funds remain invested for the long term, with only minimum annual allocations (called a “Disbursement Quota”) required to charities.

The sheer magnitude of wealth accumulated today is far more than most people would ever imagine whether from stock market gains, real estate appreciation, bitcoins and other digital assets, inheritances, or the disposition of family businesses.  

I thank my late mother for imparting a philanthropic mindset to me and my brothers, as each of us supports worthy causes with the same level of responsibility.

The truth is that not everyone is so fortunate, and by being philanthropic, we are able to give back so that others can be inspired to do so when they achieve the means and can follow suit.

As with many words we are seeing in the industry of family enterprise, like family office and philanthropy, it is important for you as a family to define what it means to you.  A foundation may not be what you as a family are aiming for. And if you are cash flow poor, your definition of philanthropy may be very different that one who is cash flow rich.  Philanthropy can also be defined as giving service to others, or time donated to share your knowledge and know how on boards and in charitable organizations.  Getting the whole family to put food baskets together once a year may be the extent of your philanthropy, and that is impactful.  However, you choose to define it for your family is ok.  Just be clear and communicate with your family what philanthropy means to you and how this value of giving is to be passed on to the next generation.

There are philanthropy advisory teams at most major financial institutions who can help guide you in the development of a strategy for your family.  Donor Advised Funds can be started at levels of around $10,000, so it doesn’t need a full-blown commitment from the outset to start a family philanthropy journey. 

Reach out to your financial advisor to have a conversation around how philanthropy can be used in your planning.   And get ready to feel good about your decision!

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