Philanthropy is a mean of affluent individuals and families to create impact and to develop their legacy. Some choose a passive way of giving and outsource these activities while others choose to actively engage in philanthropy.
The way of giving may differ among families but the practical steps of starting a philanthropic activity are similar. The main questions that each philanthropist is facing regarding his giving are how much, when, how, where and to whom to give?
The first recommended step in giving is to articulate a mission statement. Such mission is an outcome of discussing the shared values and the vision for positive impact. These will determine the areas and causes of focus for giving. Such statement will describe the mission and create guidelines and a philanthropic roadmap for years to come.
The second recommended step is creating guidelines for giving. This is an extension to the mission statement, describing the implementation policy. It will help to determine on a day-to-day basis, what causes shall be supported and to what extent and what causes won’t.
The next step of planning would be research for relevant projects and organizations, or creating them. The aim of this search is to find the most effective way of bringing the vision to reality and if required also to develop the family legacy.
A family office may support the family philanthropy in various ways, which refer to planning, governance, implementation and impact assessment.
Philanthropy may bring benefits to the family in many indirect ways. It may help in starting discussion of issues of governance, in a relatively soft subject. It also develops collaboration skills and make the family get used to working jointly as one unit. The family will need to practice collaboration, compromise and shared decision making. It may support the long-term family unity. Philanthropy may train the next generation to be good stewards of the family. It will empower them to do something meaningful and have sense of purpose. It may also provide them an experience of taking responsibility on budget and implementing operational plan. Last but not least, philanthropy may help in aligning family values and create legacy.
There are various types of charitable entities, which differ in the benefits that they may grant the family. The following, are popular and common structures:
- DAF (donor advised fund): These organizations are public and therefore allow the donor to receive full tax benefits. The family may recommend the charity that will receive the donation, out of a list approved by the DAF.
- Private foundation: If the scale of giving and the importance of control is high enough, a family may elect to set up a private foundation. This type of foundations provides greater control of the family on the deployment of donations and of the investment policy. However, they suffer from less favorable tax treatment and higher administrative costs.
- Direct support to organizations: a popular way of giving is directly supporting organizations, such as hospitals and museums. If the supported organization is a public charity, it will grant the donor full tax benefits. It may also offer certain level of involvement, which will be higher compare with DAF but limited compare with private foundation.
- The Merit Spread Foundation (“MSF”) way of giving: an ideal organization, would offer the combination of all the benefits available in the various structures. Merit Spread Foundation offers such a unique combination and more. MSF has created the tailor-made charity program. The donors enjoy a combination of all of the benefits of public and private foundations. From tax perspective, the donors enjoy full tax deduction and benefits, granted by a public charity. In parallel, as a charity the may execute philanthropic projects independently, MSF may offer the highest level of involvement allowed by law to the respectable donors. MSF is also engaged in creation of private family legacy programs, to the benefit of the donors.