Dr. Michael R. MacDonald
Giving away money is much harder than earning it – as Warren Buffett has often said.
This may not have been his exact words but they fit with his general ideas about charitable giving.
Here is a glimpse of his reasoning behind these ideas.
Buffett explains that philanthropy requires a completely different skill set than investing. While market dynamics provide clear mathematical feedback on what works when making money, charity does not offer definitive metrics for success. He explains that this lack of clear signals makes decisions about charitable funding remarkably complex. And it makes ensuring that funds actually solve systemic problems all the more challenging.
According to Yahoo Finance, Buffett did say,
“It is an easy deed to give away money that will never be of any real use to you or your family. The harder part is making sure that the money you give away goes to the right people and is used for the right purposes.”
This was no easy task for Buffett, since he has billions to give away.
To help with this task, he donated over $47 billion to the Bill & Melinda Gates Foundation (now the Gates Foundation) from 2006 to 2026. He relied on this incredible foundation to research and make the hard decisions about how to allocate so much money. More recently, he has used his family foundations as a vehicle for his philanthropy.
Part of Buffett’s struggle was his need to see that his money was well-spent. He was one of the world’s most successful money managers after all.
In a very small way, I too have a need to get my money’s worth when I donate. I wrote a post called, More For Your Money, about my ideas and approach to this struggle.
Most of us do not have billions to give away. But the task of donating (and all the hard decisions that come with it) can still be overwhelming.
Here are a few ideas to help you with this important journey.
A Financial Plan?
A financial plan is always a good idea, no matter your age.
If you are considering retirement, there are many software programs that will analyze your assets, your monthly and annual spending and offer projections about how long your money will last.
Our investment adviser at CIBC Wood Gundy used one such program (I think a subscription one available to advisers) to help my wife and I map out our financial future. This is then updated every quarter with a comparison of our current assets in relation to our financial goals.
I have found this process reassuring. And it does help us to feel less anxious about the charitable donations we make. It helps us know what we can afford on an ongoing basis.
Your Will
A financial plan can also help you plan for charitable donations in your will. But this is a more challenging task, for several reasons.
If your are still young and healthy, you may feel that there is no rush to plan for your demise. You may want to put off getting a will. This is a big mistake. Preparations for an uncertain future that can affect many people in your life are never a bad idea.
My wife recommended we get a will set up after our daughter was born. So we hired a lawyer and got it done. It was not that expensive nor hard to do. My wife always has the best ideas. Aside from our basic wills, we also set up Powers of Attorney, one for health and one for financial matters.
This whole process provided a lot of peace of mind and important protection for my wife, daughter and I. We also received an added benefit. We liked our lawyer and have established a lifelong relationship with him. We know who to call whenever legal matters (or questions) come up.
The idea of hiring and working with a lawyer may be too intimidating, however. For the squeamish or avoidant among you, there are less comprehensive options available online. These are quite easy to use and are quite adequate in my opinion.
I have used the software from LegalWills.ca to set up simple wills and Powers of Attorney for several family members and have been happy with the results. This process is quite cheap and for a few extra dollars you can pay for a lifetime subscription, allowing you to make changes whenever you want.
Philanthropy and Your Will
Even with a detailed financial plan and a will, it may be hard to commit to donations to charity, many years in advance.
The process can involve hard decisions and detailed converstions with your spouse and family members. And even with detailed projections about how much money you may have left (at a particular age), it can be hard to trust, fully, that this is exactly what your financial future will look like.
This will be particularly difficult if you are trying to determine dollar amounts for all the people and organizations you want to provide for in your will. Of course you could estimate the amounts you want to leave, then update them year by year as your financial future become more clear and certain.
You can also break down this process into smaller chunks. You can specify, in your will, who will get your retirement savings accounts, your life insurance benefits, your prized possessions, your home or cottage, as examples. Be sure to factor in whether or not the benefits you are leaving are taxable or not. This can have a big effect on how much the recipient actually gets.
Some choose an alternate strategy and that is to allocate percentages. You can specify in your will what percentage of your estate (after taxes, debts and specified allocations are distributed) should go to each recipient. You can start with 100% and start allocating what percentage should go to your most important person or organization and keep repeating this process until you are down to zero.
If you want charities to receive a percentage of your estate, this can be spelled out in your will. And it will help the executor of your will if you detail the name, address and charitable registration number for each charity. These details can usually be found on the charity’s website. Even as a little as 1% can help vulnerable people, especially in low income parts of the world.
You don’t have to have a perfect plan for all of this at the start. But it is very helpful to get something down in writing, knowing that you are free to update your will (through your lawyer or online will) at any time.
So Many Decisions
So now you have decided you want to donate a percentage of your estate to charity, but are stuck on which charity or charities to choose. This in itself can be a daunting task.
A simple place to start is to consider the charities you already donate to and add them to your will. Now you at least have someting in place should anything happen to you.
But maybe you are concerned that too much money will go to too few organizations. And you need more time to research additional charities that you want to give to. (Stay tuned for upcoming posts on how to narrow your search for charities you want to help.)
Here are a couple of options to consider at this stage.
One is a community fund or foundation, usually set up by cities, towns or regions. I live in London Ontario and we have a well-respected organization called the London Community Foundation, which provides funds to other charities in the London area. Many cities have similar organizations.
If you donate to a community foundation, you may or may not specify which charities the foundation will donate your money to. You can donate to the general pool of money which the foundation will disperse. On a foundation website or in their communications, they will usually lay out which causes and charities they support.
Alternatively, a foundation may allow you to set up your own fund, within their foundation. You can name your fund and have control over how your fund allocates your money. For an administrstion fee, the community foundation will do all the government and tax payment paperwork for your fund.
This is a much simpler process than setting up your own charitiable foundation.
A variation of the community foundation involves a Donor Advised Fund (DAF), which can be set up and administered through organizations that specialize in DAFs. CIBC Wood Gundy has a program called Giving Back, partnered with a DAF organizatiion called Benefaction.
A DAF can usually offer all the same benefits as your own fund within a community foundation. Like the community foundation, the DAF organization will do all the charitable donating, as well as the administration and tax reporting.
My wife and I set up a DAF with CIBC and Benefaction and have found it to be seamless. One of the main reasons we chose this DAF program is that all investments stored within the DAF can be managed by our own investment adviser. We like having a little more control over the investments so that hopefully more money will be available to donate.
A Final Thought
Consider a little quote I came across from the lifeyoucansave.org website.
“Nobody made a greater mistake than he who did nothing because he could do only a little.”
– Edmund Burke
I like this because it says a lot.
Until next time, let our warm hearts soar!
Michael
michael@aWarmHeart.ca
And thank you for caring that little bit extra – it really makes a big difference.
