How much should we give?
For some, that question is a moral dilemma. For others, it’s a budget consideration or a strategic decision, or perhaps all three. Regardless of the frame, it’s a question that individual donors and private foundation trustees face every year – how much will they allocate for charitable contributions?
Multiple studies, including the National Center for Family Philanthropy’s 2020 Trends Study, found that since 2015, over 60% of US-based private family foundations’ payout rate has exceeded the IRS minimum distribution requirement of 5%. Additionally, the report shows that 13% of private family foundations give more than 8% annually. While there isn’t an IRS guideline relative to payout for donor-advised funds, in 2019, Greater Horizons donors’ annual payout averaged 13% of their funds’ assets.
So, how should you decide how much to give?
The Council on Foundations and the National Center for Family Philanthropy recently published Balancing Purpose, Payout, and Permanence. The report’s authors recommend that donors consider a robust review of multiple factors impacting annual payout including purpose, trends, time, and asset deployment. They keenly note that asset stewardship can include the connection of assets to mission through various investment options including impact investing. Later they investigate the notion of perpetuity and time horizon – asking trustees and advisors to consider if perpetuity is a legal requirement of their donor-advised fund or private foundation or an implied vision. Next, they address the complicated issue of intergenerational equity. The authors ask donors to consider “is the good we could achieve today, worth more than the good that could be achieved in the future;” and, further, “is it more important for…family foundation(s) to leave future generations a legacy of impact or leave them a corpus of the same value as today?”
These are important questions and ones that we encourage all donors to consider, but at the root of each of these considerations is your mission. What drives your generosity? What inspired previous generations to establish your foundation or fund? Does your mission focus on issues that demand long-term investments like voter’s rights, racial equity, climate change or affordable housing? Or does a portion of your mission call for urgent contributions for food access, equitable broadband access, or hospital capacity? Either way, do all of your charitable activities support that mission? As George Suttles, Director of Research at Commonfund Institute notes, “If the private foundation or donor-advised fund seeks to be values-driven, then all the activities are centered on a single goal – the mission.”
So, consider the question of payout by first looking to your values and mission. With that lens, what elements of your “payout” will you activate this year? How much will you give?
At the end of the day, your decision to give this year, is a portrait of your legacy. The legacy of now, and the future. If you would like help reviewing your mission and how to align all aspects of your giving in a values-based approach, please contact our philanthropic advisors. We’re delighted to help you.
Authored By: Gwen Wurst, Senior Philanthropic Advisor