June 14, 2024

Philanthropy is more than just giving; it can also be an integral component of wealth management and offer considerable advantages to both individuals and their families.

Sklair found that this convergence of services had become the new normal across industries; she observed this phenomenon first-hand during her research trips in Brazil and the UK. Philanthropy no longer serves as an optional add-on for wealth management but is instead part of its fabric.

Getting Started

Individuals passionate about philanthropy may feel uncertain of where or how to start when considering starting a foundation.

At times like these, it can be helpful to work with a wealth management professional experienced in philanthropic planning. Such professionals can help with filing for tax-exempt status and creating corporate documents for a new organization – as well as assist with other legal aspects related to setting up charitable groups.

Philanthropy advisers often double as wealth managers. Additionally, more philanthropy advisers are offering philanthropy services as part of their portfolio of offerings due to an increasing trend among ultra-rich families searching for meaningful ways to use their wealth while finding greater purpose through giving.

Tax Benefits

At all levels of wealth, charitable giving offers significant tax advantages. Donors can reduce their taxable income with cash donations while those giving appreciated securities may avoid capital gains tax altogether while receiving full deduction on their contributions.

Wealth managers offer their expertise to ultra high net worth families by helping them establish private foundations to support their children and grandchildren forever. At lower levels, wealth managers assist clients in including gifting into their overall financial plans; setting out goals, developing strategies, and monitoring progress towards these goals.

Wealth managers throughout the globe have increasingly adopted philanthropy advice into their services, as evidenced by Glucksberg (2016) in the US, Von Schnurbein and Bethmann (2015) in Switzerland, and Sklair (2017) in the UK studies which revealed that this form of giving is increasingly integrated into wealth management rather than treated separately from it.

Using a DAF

A Donation Account Fund, or DAF, is a third-party entity that manages charitable donations from individuals and families. Donors contribute money directly to the DAF, claim an immediate tax benefit/deduction and later the sponsoring organization disburses these funds directly to charities of their choosing.

Donating appreciated assets to a DAF can also be extremely advantageous, enabling donors to avoid capital gains taxes on any appreciation while giving them time to consider how best to use these assets for philanthropy. Donations through DAFs are an ideal option for investors seeking to donate across multiple organizations over time or with complex assets like private equity, real estate or art that might need special consideration.

When opening a DAF, clients should consult their wealth advisor and the sponsoring organization’s rules regarding investment options and donation limits before proceeding with opening one. Furthermore, clients should ensure their advice will be implemented when it comes to dispersing donated assets to charity.

Using a Foundation

Wealthy individuals and families frequently want to express their values through charitable giving, whether that means setting up a foundation or using other vehicles like trusts. A foundation allows donors more control over their giving while lasting in perpetuity; on the other hand, trusts can serve as an efficient way of passing on assets without taxation issues being an issue.

Sklair’s interviews with advisors in both the UK and Brazil reveal that many wealth managers promote family philanthropy as an opportunity to teach young inheritors about wealth accumulation and cultivate ideals of financial stewardship – but these efforts may actually contribute to wealth accumulation and inequality more broadly.

Wealth managers must understand the full spectrum of tools and planning strategies available for philanthropic clients, including specialist providers like Foundation Source. Their support can assist wealth managers in meeting legal requirements and financial tactics needed to assist their charitable-minded clients, as well as collaborate and leverage other philanthropists in solving large-scale issues like poverty eradication or environmental sustainability.

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