'Tis the Season for Giving

Natalie McVeigh: Sure. Thanks, Lisë. Great to be here with you and JoAnne. I'm Natalie. I'm a director in the Center for Individual and Organizational Performance. And philanthropy is something that a lot of families do, and there are a few certifications out there. And at one is the Advanced Certificate and Family Wealth Advising through the Family Firm Institute where the wealth advising certificates, both basic and advanced, really help you think about not how to make your money, but how to make it work for you, whether that's through a family office or a family philanthropy. And so, there's an intensive program on both family office and family philanthropy. And as of late, both JoAnne and myself are in and completing our Chartered Advisor in Philanthropy Program through the American Colleges, which was really set up to be the quill of family and philanthropic advising for high net worth families, for individuals and for nonprofits. It allows you to see all three areas as a donor, as a grantee, the structures to be used and how to make that relationship really work.
LS: Great. I'm so glad that the two of you are doing this. JoAnne, do you want to take a minute to introduce yourself and talk maybe a little bit about your involvement in the program?
JoAnne Geylin: Sure. Thanks Lisë. I'm JoAnne and I am a director in the center as well, and also in private business services. My background is primarily tax with the focus on high net worth individuals. Most of my clients are always looking for ways to give back, so the Certificate in Philanthropy was a way to help me help them. And that's what I'm hoping to get out of this program.
LS:Right. Good. And we know that a lot of our clients have been asking us questions about this, and it's just such an important topic. So Natalie, can you help us to understand how can philanthropy be an entree into conversations about wealth and legacy with the families that you serve?
NM: That's a great question, Lisë. We get it a lot this time of year. And simply, I often start with a conversation with clients about what is wealth? And many people start with the things you know, it's financial, it's numbers, it's hard assets, it's real estate, it's bonds. And then I ask how exciting is that to your children? And they chuckle, and that doesn't seem as exciting. So we help them expand what wealth is. And so, there are several different models for what wealth is. You might've heard of three types of wealth, six types. We use seven types of wealth. So one, we already know financial, but then we talk about intellectual. It's the things that people know, their talents, their abilities. When you start talking about intellectual wealth, it starts leveling the playing field because everyone knows different things. And then we add in spiritual, which is your beliefs, your values, your guiding principles, which is most often what families mean when they say legacy. They want to pass on more than their wealth. Studies show that over and over again.

And then we go to their social capital. That is what their family's name is, their reputation, their social standing. This is where philanthropy really lives. And it's a place for young people to start exercising their ability to grow. What's the most important capital for wealth succession, which is human capital. It's the personal development of each family member for them to start feeling ownership, for them to start being able to accomplish things without feeling limited by what they're doing. And so, philanthropy is an easy way to get in because it's giving that the family's already been doing. It's the way for mom and dad or whatever parents there are to start describing how they think about sharing. And it's also a way for the adult children, sometimes they're adults, sometimes they still are children in their teens, to start saying, "What do I care about? And where do I want to put my money behind my beliefs?" And start to have those joint family discussions.
LS:It sounds really, really powerful. I also know that right now with everything going on in the world, a lot of people are concerned about, as you mentioned earlier, JoAnne, your specialty in terms of taxes. How does the Cares Act impact charitable giving?
JG: The Cares Act really benefits so many people, but with the Cares Act specifically to charitable contributions, the Cares Act changed the amount you're allowed to donate to a hundred percent of your adjusted gross income. So that means if you make a million dollars a year, you can actually donate the entire million dollars and not being limited to anything. This is really specific though, to qualified charities, which are public charities. A lot of our clients donate directly to public charities, but they also donate through donor advised funds and private foundations. These two entities, private foundations and donor advised funds, are not eligible for the higher deductions, so they're still allowed only 20% of their adjusted gross income. But if you do the proper planning, you can really maximize both. You can donate the maximum amount to your private foundation, as well as picking your favorite charity, public charity, to donate the balance.
LS:Sounds like it's a complex field and there's a lot to know about it. So I'm glad you've got that background. You also mentioned foundations. So Natalie, I'm wondering, can you tell us a little bit about how families or perhaps high net worth individuals are using foundations? What are you seeing?
NM: Yeah. And we'll get into, we're going to use the term foundation generically today. JoAnne will talk about the specifics, but we're really just talking about a giving mechanism. So we're seeing families use it as a way to express their values. And what that looks like is a couple of different things where they first decide how their being, and that might be in their family business. They might've been doing some corporate social responsibility. They might've been contributing to a community. And then, usually in their investments, they're investing in a certain way. So we help the family think holistically, strategically about what they want to do with their money. So they're not giving with one hand and then not being in alignment somewhere else. And so, they use these vehicles to preserve and to contribute to the communities in which they live in. And a couple of ways that they do that are really through measuring impact.

So, charity starts from the heart, right? We all care about things and we sometimes want to do a lot. And the question is, do we want to do a lot or do we want to do things well? So what are the few things we care about? How do we put our efforts there and how do we measure that impact? And how do we support the organizations we're giving in? Is that specifically through direct donations? Is that with our time? Is that with our network, our expertise? How are we making this impact? And how is this really tying into the larger things our family believes in? You hear a lot of people say, "We believe in integrity." Or you name those values, but how do we make them actionable and living? And that's what we're seeing families do year after year. It's also a place for their adult children to be involved. They might be grant making directly. They might be reviewing grants. There might be a board that they're sitting on to do joint problem solving together, to grow these skills in their human capital.
LS: It sounds like there's a lot of emphasis and it's certainly very important to think about the values, the drivers behind these key decisions. And we're very capable of helping clients to be able to do that. And then of course, there's also the mechanics of all of this, right? So JoAnne, can you just help us to understand what are some of the common giving mechanisms that we see our clients using?
JG: Well, as Natalie said, a lot of families will create a private foundation and it's really easier for them to just fund the foundation, and then they can decide really more specifically which organizations they would like to donate to. But for 2020, you're really going to take those funds, and rather than running them, putting them through the foundation, it's going to be more beneficial just from a tax perspective to give them outright to the charity. But as I said earlier, we can use both our private foundations and direct donations in order to get the most benefit to the charities, as well as to the families. The other thing that we actually didn't mention are distributions through your IRAs, your retirement accounts. These are things that go directly from your IRA to either the private foundation or the charity of choice.
LS:Right. It makes perfect sense. Natalie, one of the things that you had mentioned, and JoAnne too, had brought it up, are the differences between there's foundations and of course there's the donor advised funds. And I'm not sure that people necessarily understand the difference there. Can you take a minute to just explain a little bit about that?
NM: Yeah. JoAnne did a great job starting to talk about all the different mechanisms and honestly, we can do a whole podcast on that and we will. But just briefly, what I'm seeing come up with a lot of my clients is that people want a foundation because they want to put their name on it and they've heard about foundations. Now, foundations have some very specific IRS requirements, legal requirements. And one of the simple distinctions is they require you to give 5% away per year. And there's a lot of work that goes into that. Great things.

It can also mean that you can pay staff, so on and so forth, but families can get the same results, the same family giving, the same tax deduction, using a donor advised fund. It has slightly less legal requirements that are consistent across the board, although it is a mechanism for giving. And you could even call and I have some clients and do this, they call their donor advised fund, the Smith Family Foundation. So it's one of the mechanisms that if you had to get it done by the end of the year, this year, we can absolutely help you find a place that can get one launched before 2021.
LS:Well, thanks for that, Natalie. JoAnne, I'm wondering from your perspective, do you have anything to add to that?
JG: Yes. The differences are really mostly tax-related. A private foundation is a wonderful vehicle, but it was very complicated to set up and maintain over the years. A donor advised fund usually goes through a brokerage house, such as Fidelity or Merrill Lynch. And these are relatively quick and easy to set up through your broker. For 2020, it would be best to use a donor advised fund. For 2021, if you wanted to do something different, you could set up a private foundation.
LS: Right. It sounds like our clients have definitely got some options and there are some quick solutions and there are some things that would take a little bit more time. So thank you for shedding some light on that. So I think that, one of the things that we've talked about, that's important for us, for our clients to take away, even from this little introduction to philanthropy is that there are multiple aspects to this. It's not just about figuring out where to put your money or how to be able to do this in the most tax effective way.

But it's also about your family. It's about your personal values. It's about really key decisions for the future, so it's worth taking the time to look at this in its most holistic fashion. So, I want everybody out there that's listening today to know that we have a great team and we are ready to help you with this. So as we move into the holidays and for many people, this is an important topic. Please take a moment to reach out, send us any questions. Take a look at our website, give us a call. We're here and happy to help. Natalie and JoAnne, thank you so much for joining me today and everyone out there, thank you for listening.