Sunday, September 27, 2009

Seven Steps For Giving to Charities

At this time of year snail-mail and email carry an extra heavy burden of pleas to give money to any number of mostly worthy charitable causes. Due to various disclosure documents and/or if your zip code is in one of the higher income tax payment districts, one certainty is that any charitable giving this year will generate many more requests next year. These requests will come from the same group to which you gave, but also many others who learn (or guess) that you are good for a contribution.

My Seven Steps for Giving to Charities:

1. The first step is to have a CHARITABLE GIVING PLAN. There will be more urgent pleas for your money than all of your resources. (As Mark Antony was quoted by Shakespeare in Julius Caesar, “They are all honorable men.”) This plan could encompass this year or future years. Due in part (and only, in part) to high “death taxes,” charitable giving is an important part of many people’s estate plans.

As with any plan, writing the first plan is the most difficult. The writer or if you prefer the professional term, the grantor, is often paralyzed by trying to think of every conceivable element to the plan. This paralysis usually prevents the production of a plan. As one who has drawn up many business and organization plans, I recognize that the first step is a commitment to plan. Experienced planners know that plans are meant to be revised over time. Nevertheless, if shared with one’s attorney, the first plan can become one of the foundations of an estate plan with a good chance of doing what the grantor intended. As one matures in the art of preparing and revising charitable giving plans, there may be comfort in discussing the plan with selected beneficiaries, now and in the future.

2. TRANSFERRING RESOURCES is similar to an equation. On one side are the resources. Most often cash or securities are deducted from one’s total and added to one or more charities. The motivation for the transfer is triggered by a belief there is a benefit from the transfer. This benefit is often difficult to measure or even define. In some cases the benefit is best summed up by the phrase, “A warm feeling.” I suggest one should be a little more precise in identifying the benefits.

The first benefit is that the specific charity can accomplish a favored endeavor that it could not do at all, or as well, without the contribution. The next possible benefit is that the charity’s work relieves others of an additional requirement that would have to be funded. (Perhaps improved educational opportunities that help children lead a productive life rather than increased taxes for incarceration.) There can be a personal benefit, other than a tax deduction, e.g. helping children learn a trade or a business that is needed for a well- functioning society. We need more plumbers, landscapers, and bookkeepers as well as classically-trained musicians, among many other skill sets. One of the benefits for giving money away wisely is to teach other, younger members of the family how to help others.

An important part of your charitable giving plan is to identify and understand the benefits of charitable giving.

3. GET TO KNOW THE ORGANIZATION. Many charities will treat contributions they receive as “manna from heaven,” and spend the money as they see fit. There are a large number of horror stories of various charities spending money that was intended for various forms of “good works” on themselves in the forms of compensation, facilities, and entertainment. Others have used money to influence the political process. Some contributions have been diverted to favored commercial activities. While each of these is improper and possibly illegal, the biggest waste of contributors’ resources is through inefficiencies or outright mismanagement. People who work in the non-profit world, in general, are attracted because they have faith in the good works of their particular charities. Often, but not always, they lack management skills and training. Quite often they are short in financial and investment skills. In dealing with these types of concerns, one should compare the size of one’s intended gift relative to the size of the organization.

I believe, if one is intending to become an important contributor to a charity, it would be wise to get involved as a volunteer. For a few non-profits, my principal contribution is to be a member, or chair, of their investment or finance committee. Over time what I can save for them (or earn for them) is much larger than my initial contribution. (I urge my children to follow a similar pattern for any non-profits that have an interest in helping.)

Your charitable giving plan should take into consideration not only your cash contributions, but other resources, most importantly the time being given. Unfortunately, a number of worthy causes are organizations that are not well managed.

4. UNDERSTAND WHAT YOU ARE SUPPORTING. Once one begins to show any sort of sincere interest in a non-profit, one quickly learns of its projects, programs and policies.

Projects typically spend money today or in the near future to accomplish a mission by a certain given date. Think of a new YMCA facility, a specialized hospital wing, or dormitory. Each of these requires an estimated amount of money to be spent on a specific funding schedule. Some of these projects require cash up-front; some require cash to meet progress payments due to contractors and others may require long-term financing for mortgages or equity for the charity.

Programs are often a continuous activity of involvement, with the people the charity sees as its audience. Most often, this takes the form of providing education or medical services to a community that can not afford to pay for these needed services. Instead of brick and mortar spending, program spending is mostly about paying people to work with those in need. “As the poor will always be with us,” the funding needs will almost always be with us. However, the size of the funding support can change based on the flow of contributions and perception of the immediate need.

Policies often deal with the charity’s desire to change the world. This may entail focusing public opinion on a need or attending to a problem. In working toward this goal, interacting with various levels of government is required. This activity is labeled “educating the government,” not specifically lobbying. While the mission of most charities won’t change, their policies can change slowly or dramatically depending on visibility and the political focus.

Understand what you choose to support; projects, programs, or policies. Each can have different funding needs and opportunities.

5. UNDERSTAND THE DIFFERENCES BETWEEN TRADITIONAL CHARITIES vs. MORE VENTURE DRIVEN CHARITIES. Many of the new-multi millionaires have generated their wealth quickly from being involved early in successful companies funded along the way by various venture capitalists. With their newly-achieved fortunes, they want to use the methods that made money for them when they invest in non-profits. I use the term “invest” intentionally, as this is their attitude. They look for a clear mission statement, which appears do-able. They want to see capable management in place, or at least specifically identified. They expect a timetable with specific milestones. Further, they want to see the same level of intensity in the non-profit that they “invest in” as they employed in building their fortunes. Since many made their money in new companies, often they favor new charities. But do not expect them to work their way through the various seats on a board of directors/trustees in the traditional path before they become the anointed leaders!

Understand the differences the way established charities work versus the more venture driven new charities and determine where your comfort level is.

6. MEASURE THE RESULTS. We live in a results-driven world. One of the elements of a well- thought out plan is the measurement of results. Many charities publish self-congratulatory annual reports which trumpet their perceived successes, and the even larger needs facing them. These are like other corporate annual reports or fund reports, which give one side of the story. An intelligent grantor should come up with his/her expectations and measurement yardsticks. In assessing the relative success of a potential gift, one should include personal benefits. For example, listening to great concerts, meeting interesting people, or gaining a deeper understanding of important factors about the community. If other family members have benefitted from these experiences that is also important.

In very human terms, we should periodically measure our efficiency in giving as well as living.

7. SELF-CORRECT. The final stage in any business plan or charitable-giving plan is the feed-back loop so corrections can be made and errors of judgment corrected. Facts believed will prove to be incorrect. One’s knowledge of what is important, will evolve. All of these elements should lead to the next edition of our charitable giving plan.

*One of the advantages of publishing a blog is that I receive feedback. Often some of the most insightful comments are from my family. The topic of this week’s blog was suggested by my writer son, Don, who believes that some multi-millionaires need help in thinking through their gifts to charities. Thanks, Don.

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