Category Archives: Tactical Philanthropy

Buzzword Bingo Revisited

October 25, 2007 – 12:20 pm

Reader Bruce Trachtenberg leaves me this comment on my post titled Tactical Philanthropy: The Next Buzzword?:

Maybe we should just steer clear of buzzwords altogether and just focus on getting the job done. Then, if necessary, we can call it “successful philanthropy.”

Bruce’s website features the Jargon Finder: an online collection of foundation and nonprofit jargon. He and I have spoken a number of times about buzzwords (Yes Bruce, I still think “robust” is a useful, meaningful word!). I thought I should revisit my Buzzword Bingo post, which I wrote in November of 2006.

Buzzword Bingo

My brother writes for the San Francisco Chronicle. I ask him to critique my writing a lot. Sometimes he accuses me of playing Buzzword Bingo (Web 2.0! Tactical Philanthropy! The Second Great Wave! Ding, ding, ding! We have a blog post!). Is all of the hype and buzz around philanthropy nothing but the hot concept of the moment? I don’t think so, but I admit that I can’t predict the future. Maybe the explosion in new media coverage is a sign that all of this is just a fad.

In the financial markets there is a concept that when an emerging trend makes it onto the front cover of general (not industry) publications, you know the trend is dead. Time Magazine’s June 2005 cover, titled “Home $weet Home”, signaled the end of the housing boom, they asked “Is The Boom Over” in 1998 just before the stock market shot through the roof, and then called Amazon.com CEO Jeff Bezos their Person of the Year in December 1999, uncannily calling the top in the stock market and the end of the Dot-Com bubble.

But what about their July 2000 cover, titled “The New Philanthropists”? Clearly, the trends in philanthropy have only strengthened since then. Maybe we are at a short-term peak in philanthropic awareness due to Buffett and Gates. However, I don’t think we’re playing Buzzword Bingo. I think the Second Great Wave of Philanthropy will be a multi-decade long event. We’ll have peaks and valleys, but I think we’re only at the beginning of a very long trend.

By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy | Comments (0)

Tactical Philanthropy: The Next Buzzword?

October 25, 2007 – 10:07 am

In last 2005, I started using the phrase “tactical philanthropy” to refer to the work I did with clients at Ensemble Capital Management. “Strategic Philanthropy” is a common phrase and I thought that if there is strategy, then by definition there must be tactics.

In spring of 2006, the book Mapping the New World of American Philanthropy came out and featured a chapter I authored called The Evolution of the Tactical Philanthropist. In the book, I argued that the current generation of donors was becoming more tactical in their giving decisions and charted the last 100 years of philanthropy and the cultural and technological changes that were driving the adoption of tactical philanthropy.

In October of 2006, I launched this blog and called it Tactical Philanthropy.

Along the way, I had a number of conversations with different people about whether or not I should trademark the phrase. But the feeling I always had was that phrase was just a name for something that intrinsically exists. Since we know that philanthropy can be practiced strategically, then there must be tactics involved, whether we call it tactical philanthropy or something else.

I believe that most philanthropic planning practiced by lawyers, accountants and financial advisors is really just tax planning. With the phrase “tactical philanthropy”, I was trying to distinguish the idea of philanthropic tactics from tax planning that used charitable tax deductions to minimize an individual’s tax bill.

I decided not to trademark “tactical philanthropy” because in the back of my head I always hoped that the phrase might enter common usage.

Last Friday I got my wish.

Jonathan Chevreau is a financial columnist for the National Post, one of Canada’s dominate newspapers and according to the paper, “is recognized today as one of Canada’s foremost personal finance journalists”. Jonathan writes a blog called The Wealthy Boomer, hosted on the newspaper’s website. On Friday, he wrote a post called Tactical Philanthropy. The post talks about the trend towards entrepreneurial philanthropy and the impact of business executives like Bill Gates leaving the corporate world to focus on philanthropy.

The post also says this:

These are examples of a trend dubbed Tactical Philanthropy, whereby focused and efficient business techniques are deployed to funding needy causes, whether alleviating child poverty in third world nations or coping with disease or natural disasters.

The “philanthropreneurs” behind these initiatives take a targeted entrepreneurial approach to solving their chosen problem, using the techniques of capitalism to drive social change. They are more efficient and results-oriented, levering up the commitment of others by using economic incentives like incentive prizes…

…It’s encouraging that the techniques of big business are being applied in this sphere.  While Gates and Buffett may grab the headlines, you don’t have to wait till you’re megawealthy to participate in such projects.

Note that the post does not refer to me or to this blog.

Jonathan defines tactical philanthropy as “focused and efficient business techniques [that] are deployed to funding needy causes.” I would define it a little differently. In this site’s About This Blog section, I write:

To practice Tactical Philanthropy is to organize, optimize, and transfer philanthropic capital in ways that maximize the impact of the donor’s strategic plan. It is the practice of transforming philanthropic strategy into reality.

Regardless, I would love to see the phrase used more. Most individuals that I speak with have never given any thought to tactical philanthropy. I have donors and their advisors tell me all the time about wasteful tactics that they have used while donating to charity. For most people, finding a cause they care about and deciding to fund it is the whole game. They don’t realize that by practicing tactical philanthropy they can ramp up their impact to a whole new level.

By Sean Stannard-Stockton | Also posted in Media, New Philanthropy, Philanthropy | Comments (1)

Tactical Analysis: Donor Advised Funds

January 8, 2007 – 8:21 am

So far we’ve gone through the first four steps of the Tactical Philanthropy process. You can click on the links to read about Goal Establishment, Legacy Planning, Asset Analysis, and Tactical Analysis. After giving an overview of the Tactical Analysis step, I gave a case study. Today I am going to talk about the second of the five major giving vehicles

  • Private Foundations
  • Donor Advised Funds
  • Charitable Remainder Trusts
  • Charitable Lead Trusts
  • Supporting Organizations

While private foundations have gotten much cheaper and easier to operate than they have been in the past, donor advised funds (DAF) are still the cheapest and easiest giving vehicle. If the majority of your charitable giving is made up of writing checks to nonprofits, then a DAF is likely a great choice.

A DAF is an account, held at a charitable organization, on which a donor is named as advisor. In practice, a DAF acts like a charitable checking account. The donor gets an income tax deduction when assets are placed in the account and can then send checks out of the account to the nonprofits he or she wishes to support. Legally, the donor only has the right to “advise” the charity that controls the account regarding which charities to support. This lack of control is in contrast to a private foundation, which the donor controls absolutely. But in practice, charities deny donors’ “advice” in only the most extreme cases.

While donor advised funds cannot make loans, pay for donors’ charitable expenses, invest in nonprofits or engage in other sophisticated philanthropic strategies in the way that private foundations can, they are incredible easy to use and can be opened with as little as $5,000. Private foundations, while not requiring the $3-$5 million in starting capital that many people assume, still generally require at least $250,000.

Donor advised funds also offer the benefit of offering tax deductibility for assets other than cash or common stock (private foundations can accept any type of asset, but only offer a tax deduction for the cost basis of assets other than cash and common stock).

Some examples:

  • Real Estate: The great real estate boom seems to have come to a halt. Donors with holdings in investment properties should think about using these assets to fund their giving. Both complete and partial gifts of real estate to nonprofits should be considered. If multiple nonprofits are contemplated as recipients, or if endowing future years’ giving is desired, real estate can be used to fund a donor advised fund.
  • Privately held business interests: If you are a partner in a privately held business or the owner of a family firm, you can use this asset in your giving. One obvious time to consider this option is when a family seeks to sell a family business that they have built up over the years. The sale of the business will trigger a large tax bill. By gifting a partial interest to a nonprofit or donor advised fund, the family can offset part of the tax from the sale. Recently the rules regarding gifts of assets held inside of an S-Corporation were changed. These assets had been an ineffective choice for giving in the past, but at least until December 31, 2007 these assets can be a tax efficient choice.
  • Odds & Ends: Artwork, life insurance, coin collections, intellectual property, The Minnesota Vikings… Almost any asset can be gifted to a nonprofit. The structure of the gift and the nonprofit receiving the gift both play into the tax ramifications. The last time the Minnesota Vikings were sold, my friend Bryan Clontz was involved in handling a gift of a partial share of the team into a donor advised fund.

Setting up a donor advised fund also allows donors to separate the tax side of their giving from their charitable intent. Since the tax deduction occurs when assets are placed in the account, this decision can be made with the donors CPA or financial advisors. Making gifts out of the fund to a nonprofit has no tax implications, and so the donor can make these decisions without concerning themselves with the tax impact of the timing or size of the gift.

Donor advised funds are also ideal vehicles for use by giving circles. Assuming the giving circles is started with at least $5,000, the group can start a donor advised fund to hold their assets. The treasurer or other member of the group can be named as the advisor to the fund and each member would receive a tax deduction for their gift to the fund in the same way they would for a gift to any public nonprofit.

One thing to keep in mind is that the choice between a private foundation and donor advised fund is not an either/or situation. While the media has made much of donor advised funds being the “next” privation foundation, in actuality they are distinct strategies that can be employed separately or in combination. Many large private foundations also set up a donor advised fund “side car” to receive gifts or assets other than common stock and cash, as well as to receive a portion of the private foundations 5% minimum distribution in years when the foundation does not find enough nonprofits it wants to fund.

Benefits:

  • Simple, effective way to organize your giving and maximize tax deductions with limited paperwork.
  • Fund your giving with any assets (such as real estate or privately held business interests), not just cash or common stock.
  • No excise tax, such as the 1-2% tax levied on private foundations
  • No liability or compliance risk since the account is legally controlled by the sponsoring nonprofit.

Drawbacks:

  • Can only use fund to write checks to nonprofits. Making loans to nonprofits or paying for charitable expenses not allowed.
  • No formal structure for involving your family members.
  • Can only make gifts to IRS recognized, US based nonprofits. No emergency grants to individuals, scholarships or international grants allowed.
  • No legal control over the account. The assets in your fund are legally controlled by the sponsoring nonprofit.

Donor advised funds are offered by individual nonprofits, community foundations and national donor advised funds (such as Schwab Charitable and the Fidelity Charitable Gift Fund). Opening an account with an individual nonprofit might make sense if you give a large portion or your charitable dollars to that organization. Starting one at a community foundation is best if you want to use the foundation’s “strategic advice” (advice on where to give). Community foundations generally charge a fair bit more than national donor advised funds, but provide very good advice on identifying nonprofits you might want to support. If you are generally self-directed and do not need advice on where to give, a national donor advised fund is probably best. These nonprofit entities offer a simple donor advised fund structure and charge low fees.

By Sean Stannard-Stockton | Also posted in Giving Circles, New Philanthropy, Philanthropy, Tactics | Comments (2)

Tactical Analysis: Private Foundations

December 20, 2006 – 10:15 am

So far, we’ve gone through the first four steps of the Tactical Philanthropy process. You can click on the following links to read about Goal Establishment, Legacy Planning, Asset Analysis, and Tactical Analysis. After giving an overview of the Tactical Analysis step, I gave a case study. Now I would like to begin talking about each of the five vehicles that donors can launch on their own.

  • Private Foundations
  • Donor Advised Funds
  • Charitable Remainder Trusts
  • Charitable Lead Trusts
  • Supporting Organizations

At this time I am not going to cover the giving vehicles that nonprofits can set up and offer to donors (such as charitable gift annuities). I’ll save an overview of those for a later date.

So today let’s tackle private foundations.

When most people think of private foundations, multi-billion dollar grant-making institutions come to mind. When we think of someone starting their own foundation, we think of people like Gates, Rockefeller, Ford and Carnegie. But over the last few years, private foundations have emerged as a viable tool for a much larger group of people.

A private foundation is a legal entity, either a corporation or a trust, which makes grants to nonprofit entities. Just as many people create a legal entity through which to conduct their business dealings, a private foundation provides a legal framework for conducting philanthropic activities.

Because assets in a private foundation are required to be given to nonprofits, a donor to a foundation receives a tax deduction upon putting assets into the foundation, rather than at the time the foundation passes those asset on to a nonprofit. This separation of the point of tax impact from the point of actual gift is one of the important reasons to structure your giving.

I believe strongly that people do not give to charity because of the tax deduction. At the end of the day, a tax deduction can only reduce the cost of your gift. But since the tax reduction is never as large as the gift, someone who makes a charitable gift always ends up with less financial assets than someone who does not. However, tax deductions do drive the timing of charitable giving. The looming end of the year deadline for a charitable gift to reduce current year taxes is why so much charitable giving is down during the last two months of the year.

By setting up a private foundation (or other philanthropic vehicle), a donor separates the tax implications of giving from the personal charitable intent. A donor’s advisors can help determine when to put assets into the foundation for maximum tax benefit, while the donor can concentrate on making gifts out of the foundation (which has no tax implication) when those gifts best serve the donor’s philanthropic vision.

Private foundations are not the cumbersome, paperwork heavy entities they once were. While many advisors unfamiliar with philanthropy often assume that foundations are only appropriate for people who can put $3-5 million or more into the foundation, the rise of the internet has reduced the cost and administration needed to operate a foundation. While there are a number of firms that offer some sort of private foundation administration service, Foundation Source is clearly the leading company in this area (Full disclosure: My firm has a working relationship with Foundation Source, however we receive no revenue from them and do not benefit in any way from someone engaging their services).

Foundation Source has turned the client experience of operating a private foundation from a paperwork-laden process into a simple internet interface that is reminiscent of an online bill pay portal (you can see a demo of the private foundation web portal here). By centralizing the administration of hundreds of private foundations and delivering services over the internet, Foundation Source has made it cost effective to create private foundations with as little as $250,000 in funding (or as little as $100,000 in some cases). This is still a very large charitable gift for the vast majority of Americans. However, it changes the private foundation from being a vehicle exclusively for the ultra-wealthy (the Gates, Rockefellers, Fords and Carnegies) to a viable vehicle for people with over $3 million in investable assets.

Regardless of whether a donor uses a foundation administration firm, a CPA firm, a law firm or a family office to administer a private foundation, this vehicle offers the following benefits and drawbacks

Benefits:

  • Involve family members in the giving process by naming them to the board.
  • Make loans to nonprofits, invest in nonprofit ventures, and pay for the costs of charitable activities.
  • Make grants to international entities, individuals experiencing emergencies and offer scholarships. None of these are activities that the IRS recognizes as charitable activities when performed by individuals.
  • Have complete control over your philanthropic giving (as opposed to using a donor advised fund, which lacks donor control).

Drawbacks:

  • Even after outsourcing administration, foundations still require some paperwork by the donor.
  • Contribution of assets other than cash and common stock does not receive as favorable tax treatment as the contribution of those assets to a public charity.
  • In some circumstances, when a donor makes a gift that is very large in comparison to their income, a gift to a private foundation may offer a smaller tax deduction then a gift to a donor advised fund.
  • Income and capital gains created in a private foundation face an excise tax of 1-2%.
  • The administration costs for a private foundation, while much lower than they were historically, are still higher than some donor advised funds.

Private foundations are still tools for major donors. However, as of 2004 nearly two-thirds of all private foundations held less than $1 million in assets. Since the operating costs have only begun falling in the last five years, we may see a day in the future when private foundations become accessible to a broad range of donors at much lower giving levels.

Next Up: Donor Advised Funds

By Sean Stannard-Stockton | Also posted in Philanthropy, Tactics, nptech | Comments (0)

Tactical Analysis

December 6, 2006 – 9:50 am

The first three steps in the process of Tactical Philanthropy are Goal Establishment, Legacy Planning and Asset Analysis. Today we move on to Tactical Analysis.

Once we know what a donor’s short and long-term goals are and what assets they have at their disposal, we can begin restructuring their assets to more explicitly reflect their desired allocation of personal and social capital. Most people make charitable gifts in a reactive fashion, giving each year to the nonprofits that catch their attention and not giving much thought to the character of the social vision they are trying to achieve. But, once you have taken the steps to examine your goals and analyze your resources for achieving those goals, a world of new tactics becomes available to you.

The purpose of these tactics is to increase the amount of social capital you have at your disposal, reduce your cost of giving, and provide a platform for the donor to realize the many non-financial benefits of tactical philanthropy. Remember that the initial steps of creating your philanthropic vision and strategy (the creation of your worldview and which organizations you believe are best positioned to further your goals) must already be in place for tactics to have their desired impact. Otherwise, the leverage inherent in tactical giving will be used to enhance missions and values that may not be important to you.

Tactical Analysis is a dynamic process. The end result is a package of philanthropic tactics that interact to achieve the multiple goals of the donor in question. There are often synergies between the various tactics. For instance, setting up a private foundation by itself may not be a good tactic for a particular donor. However, that same donor may benefit from setting up both a private foundation and a charitable remainder trust. I think the best way to describe the process of Tactical Analysis is to delve into a case study that highlights the use of a set of tactics in combination and then to describe each available tactic as a stand alone entity (this second part I will cover in future posts).

So let’s begin with the case study…

Joe and Wendy are very financially successful young parents. They have a 5-year-old son named Andrew and a 3-year-old daughter named Claire. Recently they have been talking to their friends about the challenges of raising their children in an environment of so much affluence. They want to give their children the benefits of having wealth while at the same time teaching them financial discipline and not to take their money for granted.

Joe and Wendy make significant annual gifts to a number of charities. Currently they write checks for most of their gifts and from time to time, they transfer stock. Recently, they have been reading about more effective ways to give and they are eager to put a plan into action.

Joe and Wendy should consider setting up a charitable lead trust (CLT) and naming a donor advised fund (DAF) as the recipient of the lead interest. They will then have an opportunity to make a large, gift-tax free transfer to their children while utilizing philanthropy as a platform for teaching their children financial and family values.

By funding a CLT with $2,000,000 and committing to make annual payments of $164,000 from the trust into a DAF, Joe and Wendy can gift the principal of the trust to their children in 20 years. Assuming an 8.2% rate of return on the investments in the trust, the children will each receive $1,000,000 in 20 years. A higher or lower rate of return could increase or decrease the amount they receive, but regardless of the value, the gift will be completely free of gift-tax. In addition, the trust will receive an income tax deduction for the annual payments of $164,000, these gifts will be excluded from Joe and Wendy’s personal giving and will not face any annual percentage limitations.

Joe and Wendy can involve Andrew and Claire in the operation of the DAF to a greater and greater degree as they get older and use the process as an opportunity to talk to their kids about financial management, investments, taxes and giving back to their community.

In this way, Joe & Wendy set up a structure that will:

  • Provide them with a tax efficient way to engage in giving.
  • Allow them to think only about the philanthropic motivations of their giving, since the tax ramifications will be taken care of up front and put on autopilot.
  • Give them a framework to use their giving as a platform to discuss their most deeply held values and beliefs with their children, learn about their children’s interests and values, and give them a context to teach their children about financial issues.
  • Transfer approximately $1 million to each child at ages 25 and 23 respectively, but only after the children have spent 20 years discussing and witnessing the value of money and being educated in how to handle it.

You can see from this example how Joe and Wendy have increased their ability to give (by lowering their after-tax cost of giving), increased their family’s personal capital (by transferring assets on a tax-free basis to their children), and incorporated giving into the very fabric of how they raise their children.

This is just one small example of how a family can engage in tactical philanthropy. Going through the process in practice would involve a much more thorough analysis with many more issues being addressed. There are actually multiple solutions that could fit Joe and Wendy’s needs; the CLT/DAF combination is just one possible outcome. At my firm, when we produce a Philanthropic Optimization Process® report for a client, we present a series of options for consideration. Given the trade-offs between various tactics and the way that a particular solution can change family dynamics, there is no “right answer” when it comes to devising a Tactical Philanthropy plan.

By Sean Stannard-Stockton | Also posted in Philanthropy, Tactics, nptech | Comments (0)

Asset Analysis

November 21, 2006 – 9:03 am

Step three of the Tactical Philanthropy process is Asset Analysis. Most of the charitable giving in this country takes the form of cash gifts. In most cases, cash is a bad gift. The IRS gives you an income tax deduction when you make a gift to charity. They also forgive you any capital gains tax you might owe on an appreciated asset if you use it to make a gift.

If you are a top tax bracket donor in California (the state with the highest combined state and federal taxes, and the place I call home), a $10,000 gift of cash will have an after-tax cost of $5,570. However, if you were to make a $10,000 gift using a theoretical asset with a zero cost basis, your after-tax cost would be just $3,140. Taking advantage of the capital gains tax reduction in addition to the income tax deduction allows the donor in this example to either increase their giving by 77% without increasing their cost of giving or reduce the cost of their giving by 44% without decreasing the amount they give each year. Now clearly, most people do not have zero cost basis assets sitting around. But, this example highlight the dramatic impact using the right assets to fund your giving can have.

During the long bull market of the 80’s and 90’s, many people became familiar with the concept of gifting shares of stock to the nonprofits they supported. However, the golden rule of the asset analysis process is “Gift with your most highly appreciated asset.” During the 80’s and 90’s, common stock often represented donors most highly appreciated asset. Today with the market still below where it was in 2000 and other assets (like real estate) perched at the top of their own rally from 2000 through today, donors need to look beyond common stock when thinking about how to fund their charitable giving.

The Asset Analysis process reviews a donor’s complete financial holdings and identifies those assets that present the best opportunity to fund the donor’s giving.

Some examples:

  • Real Estate: The great real estate boom seems to have come to a halt. Donors with holdings in investment properties should think about using these assets to fund their giving. Both complete and partial gifts of real estate to nonprofits should be considered. If multiple nonprofits are contemplated as recipients, or if endowing future years’ giving is desired, real estate can be used to fund a donor advised fund.
  • Privately held business interests: If you are a partner in a privately held business or the owner of a family firm, you can use this asset in your giving. One obvious time to consider this option is when a family seeks to sell a family business that they have built up over the years. The sale of the business will trigger a large tax bill. By gifting a partial interest to a nonprofit or donor advised fund, the family can offset part of the tax from the sale. Recently the rules regarding gifts of assets held inside of an S-Corporation were changed. These assets had been an ineffective choice for giving in the past, but at least until December 31, 2007 these assets can be a tax efficient choice.
  • Odds & Ends: Artwork, life insurance, coin collections, intellectual property, The Minnesota Vikings… Almost any asset can be gifted to a nonprofit. The structure of the gift and the nonprofit receiving the gift both play into the tax ramifications. The last time the Minnesota Vikings were sold, my friend Bryan Clontz was involved in handling a gift of a partial share of the team into a donor advised fund.

Many people regard the charitable gift portion of the IRS code to be the most complex part of the code. The point of the Asset Analysis is to take a step back and reconsider what you view as your available resources. Two financial assets with the same fair market value may have very different gifting capacity. Simply choosing the right assets to fund you giving with can allow you to dramatically increase your ability to give without increasing your cost of giving or decrease your cost of giving without reducing the amount you give.

By Sean Stannard-Stockton | Also posted in Philanthropy, Tactics, nptech | Comments (0)

Strategy vs. Tactics

November 20, 2006 – 11:34 am

This blog is about Tactical Philanthropy. Phil at Gift Hub recently complained that most philanthropic planning is tactical and so I want to take a moment to break down the difference between Strategy and Tactics and explain why I think they are equally important disciplines.

The words Strategy and Tactics come to us from the military. I’m sure that there are readers who will cringe to see me use a military example in a discussion of philanthropy, but the root of these words is important to their understanding.

Webster defines Strategy:

“The science and art of employing the political, economic, psychological, and military forces of a nation or group of nations to afford the maximum support to adopted policies in peace or war.”

Webster defines Tactics:

"1) A device for accomplishing an end, 2) a method of employing forces in combat."

With this in mind, we turn to Alan Emrich, a professor of video game design. In his course description for Principals of Game Design, he explains:

"Military minds often think in terms of strategy and tactics.

Strategy is immutable; it is a Big Picture look at a problem that focuses upon the entire forest and not individual trees. Military concepts such as objective, offensive, simplicity, unity of command, mass, economy of force, maneuver, surprise, and security represent the timeless principles of strategy. Why do you think Sun Tzu’s The Art of War has been a best seller for thousands of years and translated into every imaginable language? Because it teaches strategy and the lessons of strategy are timeless. They are bound to our very nature as humans.

Tactics vary with circumstances and, especially, technology. If I were to teach you how to be a soldier during the American Revolution, you would learn how to form and maneuver in lines, perform the 27 steps in loading and firing a musket, and how to ride and tend to a horse. Naturally, yesterday’s tactics won’t win today’s wars – but yesterday’s strategies still win today’s wars… and will win them tomorrow and into the future.

So, tactics present a Small Picture perspective where individual trees are in focus but the Big Picture of the forest is not. Just as your eyes have to look up from this page to refocus on the larger room you’re reading it in, so strategy and tactics require a different focus."

I agree with Phil when he complains that most philanthropic planners are tactical. Tactics without strategy is a wasteful expenditure of resources. Tactical advisors who do not comprehend strategy are like generals fighting a war with no purpose. Tactics must always serve the goal of strategy. A tactical advisor must realize that a tool like a charitable remainder trust is just a way to manipulate money unless it is used to further the philanthropic strategy of the donor/client.

In general, most tactical advisors are engaging in product sales. Whether they pitch charitable gift annuities or donor advised funds, they are incentivised to view their product as the best tactic to further all strategies. Tactical Philanthropy is an advice-based approach that views all tactics on equal footing and carefully selects the tool(s) most useful in each case.

In recent years, the media has characterized donor advised funds as a new “competitor” to private foundations. The fact is these two vehicles are different tactics and each serve different types of strategies more appropriately. While they can be used for some similar functions, viewing them as competitors is like arguing about whether a Toyota Prius Hybrid is better or worse than a Ford F-150 pickup. Sure, they both can take you from point A to point B, but if you are concerned with hauling a lot of stuff around, the Prius is the wrong Tactic to achieve your Strategic goals. Likewise, if you want a quick, easy, clean and cheap way to get around town, the Prius is a better Tactic than the F-150.

Phil seems disturbed that so much of the activity around philanthropy seems to miss the point. Recently he discussed Pierre Omidyar and worried that there is “more in Pierre of Adam Smith than Aristotle or Jesus.” I agree that we need more “guiding lights” for today’s New Philanthropists. We need more people like Tracy Gary, Charles Collier and Peter Karoff. For without enlighten strategy, tactics are powerful tools put to waste.

In the introduction to Collier’s book, Wealth in Families, he states:

Together, these pages serve as a reflection on the meaning and purpose of family wealth. These essential “why” questions surrounding wealth form the subtext of each chapter. I do not delve into the specific arrangements and products associated with estate planning and charitable giving because they are simply secondary to the questions of meaning, legacy, and how we grow great human beings.

I agree that tactics are secondary to strategy. But, secondary in the sense of “coming after”, not in the sense of “lesser importance.”

This blog is about Tactical Philanthropy. A tactical approach to philanthropic giving that fully acknowledges the primary need for strategy. The Second Great Wave of Philanthropy will need many different kinds of participants. I hope that this blog can play a small role in further the intelligent use of the tactics we will need to fulfill the promise of the Second Great Wave.

By Sean Stannard-Stockton | Also posted in Media, Philanthropy, Tactics, nptech | Comments (0)

Legacy Planning

November 20, 2006 – 9:56 am

The second stage of Tactical Philanthropy looks at how you want to distribute your personal and social capital upon your death. Subject to the rules of the estate tax, you can distribute the capital you accumulated during life to the government (as social capital), to nonprofits (as social capital) and to your heirs (as either personal or social capital).

There are numerous competent estate planners and bequests are the number one form of planned gift. Therefore, I think that the distribution of personal capital to your heirs and social capital to the government and nonprofits is pretty well understood by individuals and their advisors. But, don’t overlook the distribution of social capital to your heirs.

Here is a simple example:

Situation:

Susan is an 86-year-old widow with an adult daughter named Jill, who is financially secure. Susan’s assets are large enough that she expects the bulk of her estate to be subject to the estate tax. She plans to leave Jill her entire estate. While talking to her estate planner Susan learns that $1,000,000 of her estate is held in an IRA. If she leaves this account to Jill, both income tax and the estate tax will be levied on the assets and almost 75% of the account will be due in taxes. While Susan has never given very much to nonprofits, she knows that philanthropy is very important to Jill. Susan wants to make sure that Jill has the money she needs, but both of them would like to see the money used for social good if possible.

Tactical Solution:

Jill will inherit about $250,000 from the $1 million IRA after the estate pays taxes. Since Jill is financially secure, she may not “need” the $250,000 and might rather be named as an advisor to a donor advised fund with $1 million in assets. Susan can accomplish this by naming Jill as the heir to the IRA and a donor advised fund as a contingent beneficiary. In this way, Jill can decide which option is better at the time the inheritance takes place. If she wishes to take the $250,000, she can do so. If she would rather be named as advisor to a donor advised fund, she can disclaim – or refuse to inherit – the IRA assets. The $1 million would then flow into the donor advised fund and no income or estate tax would be due. She will have created this meaningful account for a cost to her of one fourth of the account value. Jill would then be able to use the donor advised fund assets either to increase the amount of her giving or to offset the cost of her personal giving, thereby increasing her personal capital.

Looking only at the IRA, we can see that Susan can either leave $750,000 as social capital to the government and $250,000 as personal capital to Jill, or the full $1,000,000 as social capital for Jill to distribute to nonprofits. Another important point is the fungiblity of personal and social capital. Since Jill already engages in charitable giving, she can use the donor advised fund assets to replace her own giving or to enhance her giving. By replacing her giving she frees up personal capital, by enhancing her giving she distributes more social capital.

By Sean Stannard-Stockton | Also posted in Philanthropy, Tactics, nptech | Comments (0)

Goal Establishment

November 17, 2006 – 8:18 am

This is the first phase of tactical philanthropy and the point of handoff from the strategic process to the tactical process. This is the point at which the strategic vision is communicated to the tactical advisor. The vision may have been crafted with the help of a strategic advisor or by the donor on their own. It may be clearly stated or somewhat vague. Whether you know it or not you have a strategic plan, although without putting appropriate energy into this initial step, your strategic goals may be limited. The best-executed tactics can only help you fully realize your strategic mission, they can’t make up for lack of vision.

The role of the tactical advisor during Goal Establishment is to fully comprehend your vision and to translate your strategic goals into concrete tactical goals. These goals may include:

  • Make the largest immediate gift possible to a specific nonprofit without exceeding a cost to your personal capital of more than a certain amount.
  • Increase the amount of annual giving without increasing the current cost to your personal capital.
  • Maintain the current level of annual giving while minimizing the cost to your personal capital.
  • Finding ways to utilize your entire portfolio of assets to fund your giving instead of making simple cash gifts.
  • Transforming the largest possible amount of personal capital into social capital in the most tax efficient way.

In short, your strategic plan will outline what social impact you want to achieve and which organizations you wish to fund (make grants to, invest in, make loans to, etc) in order to affect this change. Your tactical goals will outline the financial impact you wish to achieve. The tactical plan should contemplate the impact that the financial transaction will have on your available personal and social capital and attempt to maximize your total available capital. The desired allocation between personal and social capital is a function of how you wish to “spend” your capital, either in the pursuit of personal goods or social goods.

As Phil at Gift Hub said recently:

"Philanthropic plans start with visions, or goals, some very high level, sometimes almost breathless ("a better world") but must through a disciplined process drill down to specific tactics that can be implemented, tested, and monitored."

The Goal Establishment process is concerned with translating your philanthropic vision into specific tactical goals.

By Sean Stannard-Stockton | Also posted in Philanthropy, nptech | Comments (0)

Wealth Management of Philanthropic Capital

November 16, 2006 – 8:20 am

Tactical Philanthropy is a wealth management issue. Philanthropy as a whole is not a wealth management issue, just as life is not a wealth management issue. Nevertheless, once you have decided to become a philanthropist – once you have decided to engage in the “passionate giving of capital resources” – you need to think about the best tactics to achieve your overall strategy. These tactics will entail the efficient management of all your capital resources.

All of the assets that you accumulate during your life can be thought of as falling into two buckets. The assets that you use to finance your own lifestyle or those that you pass on to your heirs are your personal capital. The assets that you give back to society – either by default through the tax system, or proactively through direct transfers to nonprofits – are your social capital.

Most people understand the need to manage your personal capital proactively. There are numerous websites, books, advisors and other resources that encourage the tactical management of personal capital. Newspapers regularly run financial planning columns, you can maximize the efficient use of your personal capital through software programs like Quicken, and there is a general understanding that personal capital deserves a lot of attention. What is often missing is any kind of strategy for personal capital. Why are you accumulating all of this money in the first place? What are your goals in life? How are you going to use your personal capital to truly benefit yourself and your heirs? There are certainly plenty of philosophical, self-help and spiritual resources to help guide your way. However, people rarely address the strategic goals and the tactical decisions around personal capital collaboratively.

Social capital suffers from the opposite condition. Lots of people and resources encourage us to utilize one strategy over another. The very act of deciding which nonprofit to fund is a strategic act, so every donation solicitation can be understood as an appeal for you to decide on a specific strategic direction. However, few people think of their social capital tactically. When tactics are discussed, they are generally viewed as a way to reduce the distribution of your social capital in favor of your personal capital. Most people think of the tax break from giving as a way to retain personal capital, rather than understanding its ability to redirect social capital away from the tax system and to your favored nonprofits.

My expertise is in tactically managing personal and social capital collaboratively. At the tactical level, personal and social capital are identical – they are fungible financial resources. At the strategic level, personal and social capital may be used quite differently. However, at their root they come from the same pool of financial resources. How you dip into this pool and allocate your capital to personal or social projects is a strategic decision. Tactically, your personal and social capital is one and the same. You must manage all of it as a comprehensive whole.

I believe that strategy and tactics are different disciplines. There may be a rare, enlighten being who has strategic vision and tactical expertise. But, as a rule, strategies for both your personal and social capital should be formulated in collaboration with a strategic advisor. Your tactical advisor should understand your strategic goals and the integrated nature of personal and social capital. You should utilize a tactical advisor to ensure that your tactics are working in service of your strategy.

Money is just a store of time and energy. It makes no distinction between whether that time and energy is spent in service of personal or social goals. When you realize that your financial resources are a store of time and energy that can be used to fuel both personal and social projects, you are well on your way to a more comprehensive approach to the tactical management of both your personal and social capital.

By Sean Stannard-Stockton | Also posted in Philanthropy, nptech | Comments (3)