The past two years have been a time of great and sudden need. This need has led to an unprecedented response by philanthropists,1 both individuals and established foundations, who stepped up in generosity, shaped the pandemic recovery, and thrust new charitable causes into the spotlight.
With such ongoing need, and given the many options for charitable giving this holiday season, how can an individual philanthropy make the greatest impact? Below are our recommendations for thoughtful giving this year.
1. Don’t forget giving best practices and most importantly the power of collaboration. For those who are in a position to help, it’s important not only to be generous, but also to be intentional. With so many causes worth supporting, wise philanthropists are taking the time to listen, educate themselves on an issue, and to do their own research before making grants. A great place to start is by talking with community leaders and organizations who are close to an issue and may be best-positioned to know where the need is greatest.
This approach lends itself to another valuable lesson: don’t donate alone. Impact is accelerated when donors come together to align on priorities, and magnify their impact by deploying funds jointly. A successful example of this approach is the COVID-19 Therapeutics Accelerator, formed by the Bill & Melinda Gates Foundation, Wellcome Trust, and Mastercard to support the treatments for COVID-19 by providing funding to the research, development and distribution of quick and accessible treatments.2 On the topic of climate, concurrent to the COP26 Climate Summit, the Ikea Foundation along with the Rockefeller Foundation and the Bezos Earth Fund pledged billions of dollars to support renewable energy initiatives and landscape restoration projects.3 In both of these instances, groups were able to combine resources, amplify impact, and accelerate the deployment of capital at rate that may have been unachievable if they donated alone. Additionally, this collaboration also caught the attention of media, which raised public awareness and encourages wider public support.
2. Respond to changing community needs. Many altruistic individuals and families decided to increase their direct giving during the pandemic to address immediate needs, or they approved grants to causes outside their typical giving area to provide critical assistance. Far from ‘mission drift,’ these philanthropists demonstrated empathy and flexibility during a time of emergency. Some of these record gifts have made waves through philanthropic circles, challenging stereotypes, and encouraging others to take similarly bold steps of their own. Mackenzie Scott, for example, pledged to donate all her wealth throughout her lifetime, and in the past year made grants totaling USD4.15 billion to 253 organizations, which helped bring greater focus on many nonprofits working to combat racial injustice and domestic violence.4
For others, community need has meant localized giving to address critical care and community supports. A loosely affiliated Indian diaspora group based in Silicon Valley joined together to raise funds for oxygen at a time when supply was extremely scarce due to swelling COVID cases.5 Meanwhile, other groups across the US were raising funds to help Afghan refugees fleeing the Taliban.6
If you are looking to make a donation this year – no matter the size, our team of wealth planners can help guide you in exploring new causes or strategies and maximizing the impact of your giving.
3. Support international causes—but be mindful of the rules when supporting foreign charities. The pandemic has served as an acute reminder of how closely connected humans are. With this in mind, philanthropists are increasingly looking to fund causes or organizations located abroad. As just one example of this, in 2020 the World Health Organization formed a charitable foundation for the first time in its history as a response to an outpouring of donation requests, allowing donors to contribute directly to the WHO’s work delivering personal protective equipment kits, oxygen concentrators, diagnostic testing systems and other supplies to India’s frontline health care workers.7 Many donors continue to look globally for their giving as the pandemic and its economic fallout continue to ravage communities around the world.
When supporting international organizations, it is critical for anyone in the US to mind the rules governing international giving, for both due diligence and tax deductibility purposes. The penalties for ignoring these rules can be severe. Best practices suggest giving to a US-qualified, 501(c)(3) organization which engages in work internationally, or giving to a “Friends Of” organization, which generally exists to provide federal tax deductibility for charitable contributions to support a foreign charity. Another option is giving via an HSBC donor-advised fund, a key feature of which is a team of experts to perform charity due diligence and ensure donation tax deductibility.
4. Include a DEI lens to your giving. Darren Walker, CEO of the Ford Foundation, often refers to Martin Luther King Jr’s warning to philanthropists to avoid “overlook[ing] the circumstances of economic injustice which make philanthropy necessary.” This year marked a key moment in the push for equality, and many philanthropists have participated in this effort by listening to and supporting the fight for diversity, equity and inclusion and aligning their donations with their personal values and beliefs. For example, we are seeing companies put their values into action via their corporate giving. The Warner Music Group and the Blavatnik Family Foundation committed USD100 million to create the Social Justice Fund and to serve as a global champion of social justice and racial equality.8 Meanwhile, Bumble and Match, two female-led dating apps that advocate for gender equality, created a relief fund to support the reproductive rights of women in response to Texas’s recent abortion laws.9
When making charitable donations, there are many ways to consider supporting diverse communities, including considering diversity within philanthropy itself. For more information on how to add a DEI lens to your giving strategy, the Ford Foundation has published a Funder Guidance for Engaging Grantees on DEI that provides actionable steps to combatting inequality through your giving.
5. Deploying capital as a tool for impact. More and more philanthropic-minded individuals are considering their personal and philanthropic values when making financial and investment decisions. By adding an ESG lens that provides a more specific and measurable framework by which to quantify their giving, philanthropists are able to identify the most pressing needs for their community and the planet, and ensure their activities are managed in a responsible way. Never before have there been more opportunities to engage in impact while also achieving a financial return – according to Agreus’s recently published report on how global family offices are participating in impact investing, 73 per cent of next-gen leaders agree that positive social impact is equally as important as creating a financial return when it comes to deploying capital.10
Our team of advisors are actively engaging in discussions with individuals and their families on how to align their investments with their personal values, while still earning market-competitive returns. While your personal investment portfolio may not provide you with a tax deduction, leveraging your wealth in furtherance of your values can be impactful and personally satisfying.
6. Include charitable giving in your estate plan. In the wake of the global pandemic, as well as in preparation for anticipated tax reform, many people are creating estate plans for themselves and their families; this has led directly to an increase in charitable bequests over the past year.11 Charitable gifts can be included in your will and/or via a trust; in some cases these trusts may have powerful lifetime benefits, too. Just be sure to properly identify the charities you wish to support and to ensure any restrictions on your gift can actually be carried out by the charity. If you wish to provide for charity upon your death, it’s important to include the appropriate language in your estate planning documents so that your wishes are carried out. Naming a charity as the beneficiary of a retirement account or life insurance policy may be even more efficient, since these proceeds will pass to the charity outside of your estate.
7. Don’t forget the tax benefits of giving. While tax-incentivized philanthropy is not new, the benefits of doing so have arguably never been greater. Tax reform has been a major theme of the Biden administration – beginning in the 2020 Presidential campaign, and continuing through to today. The specific details of tax reform continue to be debated. With that in mind, all taxpayers are wise to consider potential tax benefits of including charitable giving in their individual financial planning.
One of the much-discussed tax proposals is an increase to income tax rates for high income earners. Because the value of a charitable deduction depends on an individual’s marginal tax rate, an increase in tax rates means a corresponding increase in the value of a charitable deduction. For individuals who would be significantly impacted by such a change, it may be beneficial to plan for charitable activity, such as funding a donor-advised fund or an operating foundation, in 2022. For donors who have significant unrealized gains, a careful analysis of the potential tax changes should also include the benefits of donating highly appreciated, illiquid assets to avoid realizing gains while also receiving an immediate tax deduction for the full fair market value of the asset as of the date of the donation.
For other donors, the largest possible tax deduction may be achieved via significant charitable donations this year. Under the CARES Act, passed as part of Congress’s COVID relief legislation package, taxpayers may take an increased charitable tax deduction – up to 100 per cent of 2021 adjusted gross income (AGI). Donors who are already giving generously relative to their AGI may wish to consider additional donations this year to maximize the deduction they take when filing their 2021 income tax return. Gift stacking, a popular strategy last year, remains useful. The CARES Act was extended by Congress but expires on December 31, 2021, so time is limited for maximizing the benefit afforded by this provision. For specific guidance regarding your charitable tax deduction, contact your tax and legal advisor.
There are so many causes worth supporting this year, it might be difficult to know where to begin. If you aren’t sure where to start, or how to make the impact you want, reach out to our team. HSBC Private Banking’s wealth planners, philanthropy experts, and experienced charitable trust and foundation administration team can help you map out a plan that takes into account your family’s values and desired impact. While the vast range of options and causes can seem daunting, your philanthropy is about the issues that are important to you. It’s personal, and it can be rewarding, and even fun, to plan and see the benefits of your efforts.
We can help you have a positive giving experience, and can incorporate philanthropy into your overall wealth management strategy. For more information and to explore solutions to help you formulate your charitable giving plan, please contact your Relationship Manager.
1 In the last year, National Philanthropic Trust, the largest provider of donor-advised funds in the US, has seen a 27 per cent increase in giving. Through 2021, NPT has granted USD34.67 billion to local and global charities on the behalf of their donors. ↩
4 https://www.nytimes.com/2021/06/15/business/mackenzie-scott-philanthropy.html; https://candid.org/explore-issues/coronavirus. ↩
5 https://abc7news.com/donate-to-india-covid-crisis-oxygen-shortage-concentrator-help-breathe/10561115/ ↩
6 https://www.nytimes.com/2021/08/20/world/asia/how-to-help-afghanistan-refugees.html ↩
7 https://www.who.int/emergencies/diseases/novel-coronavirus-2019/donors-and-partners ↩
8 https://www.wmg.com/sites/g/files/g2000004716/f/202107/Fund%20Annual%20Report_June%202020-2021_DIGITAL.pdf ↩
9 https://www.businessinsider.com/bumble-creates-relief-funds-texas-women-seeking-abortions-heartbeat-bill-2021- ↩
10 https://www.agreusgroup.com/philanthropy-impact-report/ ↩
11 https://www.philanthropy.com/article/new-report-shows-spike-in-will-creation-and-charitable-bequests-during-covid-19 ↩