How to get good at charitable giving

It is, as they say, a nice problem to have: You have been successful at making money. You/your advisors are competent at managing money. And now you want to give some of it away through a pro-active charitable giving strategy. But knowing how to give money away effectively feels daunting. Especially if you are relatively new to the sector or if the dollars you’re dealing with now are much larger than what you’ve given in the past.

As one client said, “We’re used to doing things well and we feel uncomfortable stumbling around in this unfamiliar territory. There aren’t as many resources to help with [charitable giving] as there are for investing. And you can’t talk to your friends about it because not all of them are engaged in philanthropy… If you think talking about money is frowned upon, discussing your charitable gifts is positively verboten!”

So this blog post is the first in a series designed to help you have more success and feel more confident about your charitable giving objectives – whatever they may be, however large or small your donations. We’ll start with some of the frequently asked questions from new donors.

How do I develop a strategy for my giving?
Many people start out knowing exactly the types of causes they wish to support. Often, their objectives are derived from an experience that has touched their family or they have personal or professional involvement in a particular charity, or they have an established practice of giving in accordance with their religious practice. Other people have money to give away, often through a liquidity event, but have no idea where to direct it. In both cases, the resource links in this post can help you develop your charitable giving strategy.

How can I assess a charity’s capabilities?
Every charity in Canada must have a registered charitable number under the Income Tax Act. You can get more information about a charity here.

You can verify the charity’s status through Canada Revenue Agency Charities Listings.

For due diligence, Charity Intelligence is an organization that applies investment-style research methodologies to find well-managed charities for donors.

The 190+ Community Foundations in various cities across Canada also offer a wealth of resources to help people invest in the charities serving their local communities. You can find out if there is one in your community here.

If you want to be hands on, site visits, meeting with management and volunteering are also effective means of assessing a charity’s efficacy.

What amount would be considered a meaningful donation?
It’s easy to feel intimidated by the headline-making donations of multi-millionaires and billionaires, but you shouldn’t. Although it will vary depending on the size of the organization, most small-mid-sized charities consider an important gift to be $2500, according to Denise Castonguay, Founder & CEO of Canada Gives, an administrator of family foundations. Larger organizations, such as a major hospital foundation for example, would likely consider major gifts to be $10,000 and above. Statistics would support this, as the median individual donation in Canada was $300 in 2015, made by approximately 21% of all tax filers.

There are so many worthy causes. How should I allocate my donations?
If you are just getting started, you may want to experiment a little to find your way. Don’t get too hung up on finding a focus, initially. By staying open, you may be surprised at the opportunities you find.

Castonguay gave the example of a couple that had been approached by a small charity they’d never heard of. There was a good match between the donors’ area of interest and the charity’s focus, so the couple donated, but only half of what the charity was requesting. After a site visit, the donors began to get more involved, upping their contribution the next year and, today, the wife sits on the Board of Directors. “There can be wonderful opportunities beyond what you initially imagine,” says Castonguay.

Over time, however, best practices would dictate that you establish a vision or mission statement around which to build your charitable giving. It helps you determine what to say yes and what to say no to. Philanthropic Foundations Canada – a member group of charitable foundations – publishes a Good Grantmaking guide with concrete examples of mission statements from some of the largest foundations in Canada.

Is it better to provide an annual gift or spread my gift over a multi-year pledge?
The choice is entirely yours; there are pros and cons to both strategies and the answer depends somewhat on the size of the donation, the organization and your giving strategy.

If you are a large or meaningful donor to an organization, and you don’t think your giving plans will change substantially, it may work for you to consider a multi-year commitment.

Once you’ve made the commitment, if you don’t like how the charity is using your money, or if your own circumstances change, you can cancel it. A pledge is not a contract.

On the other hand, if you are new to giving or new to a particular charity, it may make sense to test the waters before committing to a multi-year pledge. Likewise, if your annual giving amounts vary significantly, it’s best to make annual donations.

What is a good benchmark for administrative/overhead costs as a percentage of a charity’s revenue?
Administrative/overhead costs are a controversial subject within the charitable sector. They’re a little like management fees in the investment world – they are one factor, in many, to consider and it is the net “after fees” impact that matters most.

Overhead is necessary for an organization to run its operations and be sustainable. “A smaller or start-up organization may have a higher percentage of administrative costs to revenue and some donors even prefer this as they can have a bigger impact. Whereas a larger organization may have a lower cost admin but donors may get lost in the shuffle,” reports Castonguay. Lower administration costs at a charity does not necessarily mean your money will have more impact on the programs you are funding, and there is no rule of thumb.

I want my donation to have an impact. How do I measure this?
When you make your gift you have a good opportunity to discuss the type of feedback or reporting format and frequency you would like to receive – just as you would in hiring a money manager. Again, reporting will vary depending on the size of your gift(s), the level of your commitment and the organization’s capabilities. There is a fine balance between receiving the information you need on a timely basis and not overburdening the charity with information demands that will compete for their time in serving their cause. For its donors, Canada Gives provides a simple reporting template for charities that donors can customize and provide to their charities for completion. “It’s helpful,” says Castonguay, “because donors don’t always know what information they should be collecting, they just know they want their charitable dollars to make a difference.”

Coming Up…

As Warren Buffet said, “Giving money away is easy. Giving money away well is fiendishly difficult.” We aim to help you simplify it.

Next month, our Chief Wealth Management Officer, David Lloyd, will share his experience of involving his adult children in a family giving plan. The third post in our series will explore different vehicles for giving – from private foundations to donor-advised funds to estate bequests.