In earlier times, philanthropy seemed to flow only from the wills of wealthy industrialists. These days, it's just as likely to come from a very alive business owner or entrepreneur. Many have contributed to a variety of nonprofits at a modest level throughout their lives. But now they want to be more actively engaged — personally and financially. If that sounds like you, here’s how:
1. Determine your gifting capacity. A sound gifting strategy requires balancing philanthropy with the very real need to maintain a desired lifestyle. Here, careful calculations are needed to determine the amount required to meet core needs over time, taking into consideration the potential for down markets and the need for additional spending over time (e.g., later-in-life health care expenses). What’s left is known as “gifting capacity,” the amount in today’s dollars that you can comfortably give away. Before making any decision regarding a gifting strategy, be sure to speak with your trusted legal and financial advisors.
2. Run the numbers. Before you get out your checkbook, take a step back and do your homework. The meat of a nonprofit’s finances is found in the publicly available Form 990, which it is required to file annually with the IRS. In the case of a substantial gift, consider asking for a proposal with benchmarks and a budget for a specific project.
3. Leverage your gifts. More and more, young entrepreneurs are seeking out like-minded donors to join forces in so-called “giving circles.” They pool their funds and expertise to increase their impact on charitable programs.
4. Consider a coach. There are plenty of professionals who work with individuals and families to ensure that charitable giving is treated with the same care given to their investments. So-called “philanthropy coaches” might advise you on setting up a strategy, developing a mission statement and selecting suitable charities. Network with nonprofit professionals and even members of your bank’s trust department to find reputable advisers.
5. Leave a (tax-efficient) legacy. High-net-worth families often use tools such as Charitable Remainder Trusts or Charitable Lead Trusts to help minimizes taxes. In a low-interest rate environment, such tools may even leave a family better off financially than before. Likewise, by using the charitable tools available under the tax code, they are able to direct money to charitable causes that would otherwise be lost to taxes.
In the end, entrepreneurs and owners of closely held businesses are appreciative of their success — and want to give back to the communities that have nurtured their companies. In the process, they enjoy the social capital that comes with being philanthropic.
Perhaps Winston Churchill said it best: "We make a living by what we get, but we make a life by what we give."
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The contents of Financial Insight have been compiled from data and sources believed to be reliable but are not guaranteed as to accuracy or completeness. Opinions expressed are those of the authors or the interviewees and are not necessarily the opinions of City National Bank. This publication is intended to be a source of general information regarding City National Bank and its affiliates and their capabilities, the Financial markets, fraud deterrence and other matters of interest to smaller businesses and our personal clients. The effectiveness of the advice or suggestions presented will depend on the reader’s situation and are for the reader to determine. When investments are discussed, the discussion should not be relied upon as specific investment advice directed to the reader’s specific investment objectives, nor should any discussion of specific securities be taken as a solicitation or recommendation for any reader to buy or sell such securities. City National Bank (and its clients or associated persons) may at times have positions in securities and investments discussed from time to time in this publication and may make additional purchases or sales.
City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules and Regulations in the areas of law, tax and accounting are subject to change and open to varying interpretations. The strategies presented in this document were not intended to be used, and cannot be used, for the purpose of avoiding any tax penalties that may be imposed. The strategies were not written to support the promotion or marketing to another person of any transaction or matter addressed. Before implementation, you should consult your own advisors on the tax, accounting and legal implications of the proposed strategies based on your particular circumstances.
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