One of my favorite quotes regarding charitable giving is this statement by Bill and Melinda Gates in their Giving Pledge letter:
We have been blessed with good fortune beyond our wildest expectations, and we are profoundly grateful. But just as these gifts are great, so we feel a great responsibility to use them well. . . . Both of us were fortunate to grow up with parents who taught us some tremendously important values. Work hard. Show respect. Have a sense of humor. And if life happens to bless you with talent or treasure, you have a responsibility to use those gifts as wisely as you possibly can. Now we hope to pass this example on to our own children.
To me, this statement reflects some of the deeply personal reasons why individuals make charitable gifts: as an act of gratitude, to communicate personal values, to transfer those personal values to their children, to use their wealth to solve problems. As an estate planning attorney, I have the opportunity to help clients integrate philanthropy in their estate plans. What I have learned from my clients is how important it is to start the conversation with the “why” (the clients’ passions and values) and to follow, at the appropriate time, with the “how” (tax planning strategies and charitable vehicles).
Recent studies reflect the need to start the philanthropic conversation with values. The 2016 U.S. Trust Study of High Net Worth Philanthropy, conducted in collaboration with the Indiana University Lilly Family School of Philanthropy, and surveying high net worth households’ behaviors in 2015, found that 91% of high net worth households donated to charity, but only 18% of wealthy donors gave largely because of tax benefits. In identifying the most challenging obstacles to engaging in philanthropy, only 22% reported “structuring gifts in a tax efficient manner,” whereas 67% of respondents reported their greatest obstacle to giving was identifying what causes they care about and deciding where to donate.
This is not to suggest that we should abandon tax planning in the charitable context. Instead, studies suggest we should lead with the client’s values, and then offer the client options to act on these values, which could very well include structuring a charitable vehicle to minimize tax. Putting values first makes sense as clients seek to use their wealth to bring meaning in their lives, transfer values to their children, and create a legacy that will survive them.