How to become a philanthropist

For many individuals and families with significant wealth, there comes a time when they decide to engage in charitable giving in a larger, more strategic manner.

Perhaps your relationship with wealth has matured. Or you may realize you have an opportunity or even an obligation that goes beyond reacting to donation requests. In either case, you want to move toward a deeper engagement in giving that could make a significant impact on the issues you care about.

Making the shift from being a “checkbook” donor to becoming a philanthropist can be one of the most rewarding privileges of wealth. And while discussions about philanthropy often begin in the context of tax or estate planning, your planning should start with exploring what you want your wealth to accomplish and why you want to give.

What is a philanthropist?

A philanthropist is an individual who donates their time, expertise and financial resources to a particular cause or charity. For example, their philanthropy could benefit disabled individuals, disadvantaged populations or social causes like improving the environment, feeding the hungry or increasing literacy.

Philanthropists support causes or charities in a focused, consistent and sustained manner with the goal of bringing about meaningful, long-lasting change for the organization or issue.

How to become a philanthropist in five steps

The best way to become a philanthropist is to develop a giving plan that integrates with your overall financial plan, including your tax strategy and estate plan. Here are five steps that can set you on the road to becoming a philanthropist.

1. Know why you’re giving to charity.

Your charitable goals should be the foundation of your charitable activities. These questions can help you create a values-based, strategic philanthropic plan:

• How does philanthropy contribute to your or your family’s mission and identity?
• Which issue(s) are driving your desire to become transformational, rather than transactional, in your giving?
• Do you want to involve family members, and if so, what role might they play?
• How will your strategy align with your broader financial and estate plan?
• How will you measure the impact of your philanthropy?

2. Research and identify your interests and organizations.

With a world of possibilities, where would you like to focus your philanthropic impulse? Philanthropy is not only about the financial impact of large gifts — it’s also about the motivation to give.

You can’t just throw money at a problem if you really want to make a difference. For any given issue, you must take the time to learn who the actors are, what strategies they already employ, which organizations have a sound reputation and are respected in the field, and what will it take to really move the needle. Talk to thought leaders, visit organizations and read all you can on the issue you’re passionate about. This can help you identify where you or your family can make a real impact.

3. Develop a charitable giving plan.

This is the best way to make sure that your philanthropy is truly meaningful. Creating a charitable giving plan aligns your giving with your values and creates a lasting impact for those you’re giving to. It also ensures that you maximize the tax benefits of your philanthropy while incorporating charitable giving into other aspects of your financial life, such as estate planning.

Your charitable giving plan should detail which vehicles you will use to make charitable gifts. These may include donor-advised funds (DAFs), private foundations, charitable trusts, and impact investing, which involves investing for both financial gains and social good (more on impact investing below).

4. Measure the impact of your philanthropic efforts.

With strategic philanthropy, it’s important at the outset to ask: What will the results of your philanthropy look like? And how and how often will we measure impact?

Some initiatives lend themselves to metrics (for example, how many people were served? Did test scores go up? Did the incidence of disease decline?). In other cases, the evaluation of impact may be less specific or driven by metrics. Be open to the idea that impact can take many forms.

Don’t forget to think about internal impact as well. If you’re embarking on a family philanthropic plan, will it be a positive catalyst for strong family relationships and communication? Contribute to a greater sense of purpose? Engage the younger generation in a different way, perhaps one that prepares them for future responsibilities?

Defining the impact and periodically measuring it can help you make course corrections and/or adjust your philanthropy if needed. Remember, strategic philanthropy is usually a long-term commitment. Experienced philanthropists understand that nothing truly significant happens overnight with problems that are complex and intractable.

5. Tie philanthropy into your investment objectives.

Investment performance typically plays an important role in philanthropy. Working with your investment advisors to create an investment policy statement can help establish a clear understanding of how your philanthropy goals relate to your overall wealth management objectives.

Each purpose for your wealth — basic needs, lifestyle, long-term family needs and excess wealth available for philanthropic endeavors — should have its own investment policy statement, as should any formal philanthropic entity that you create, such as a DAF or private foundation. The investment policy statement describes the objectives of the portfolio, risk tolerance, asset allocation and liquidity requirements. For example, is the intent to grow the assets or spend them down over time?

In addition to investments managed by a private foundation for a specific charitable purpose — and subject to specific criteria and rules — many philanthropists use impact investing to deploy assets to advance their mission and legacy.

Impact investing identifies the intersection between the financial benefits of specific investments and your own values and beliefs. Philanthropy and impact investing are complementary means of making an impact. It’s putting your wealth to work, with the goal of earning reasonable returns that are generating additional wealth to support your impact goals.

Philanthropy can take many forms

Philanthropy can be as personalized and customized as the individuals and family who are engaged in it. That’s part of the beauty and reward of sharing your wealth.

With experienced advisors you trust, begin the process of moving from checkbook donor to strategic philanthropist.

Learn how Philanthropic Services from U.S. Bank can help you maximize your charitable giving.