One of the most important areas overlooked in many financial plans around the world and absent in many conversations with investors is their desire to leave or contribute to charitable causes of choice.
Charitable gift planning (sometimes referred to as philanthropic or endowment planning) is the process of cultivating, designing, facilitating, and stewarding gifts to charitable organizations or causes.
Many investors not only want to do this at the end of their life, usually by leaving a sizeable amount in a trust, but also want to start contributing while they are alive. A charitable gift plan should be part of any sound financial life plan. Having looked through hundreds of individual plans, those who do not have a plan to donate either have received poor advise or are people who do are never satisfied with life.
A financial life plan by the way should be one of the most important documents in a person’s life. It is a detailed description of what you want to achieve, by when for reasons that are important to you. The goal of all investment and life activities should then be designed to help you achieve those goals.
Irrespective of whether you are driven by religious beliefs or not, psychologists have shown that most people who lead fulfilling and happy lives tend to have causes that go beyond their own self. This was made popular by Abraham Maslow, in his hierarchy of needs and described as the stage of self actualization. Most investors worry that they don’t quite have enough to cover their own basic subsistence, let alone donate to a larger cause, although they wish to do so.
This is often down to poor planning and the lack of knowledge about how much money one really needs to achieve your overall life goals, including but not limited to funding for children’s education, housing and self reliant retirement.
The first step in wanting to set up a regular donation or bequeath assets to a trust beyond your life is to accept that you don’t have to be a billionaire to do it. In fact, some interesting new social research shows that poorer people in society tend to be much more generous and are likely to donate than the rich. As such your total annual donation can be any amount you want it to be. One of the traps that need to be avoided when donating is not getting swayed by the misery and needs of millions. Chances are you can’t help everyone around the world out of their hardships.
As a birthday beacons in a few days, an important aspect of my personal financial life plan was put in to action. It centered on creating an investment strategy to fund a charitable trust to provide education funding in Sri Lanka. The trust has begun by supporting two students. While I hope to do more, and envision this growing over the years to include as many students as I possibly can, I decided to start somewhere with an affordable amount.
Having made the decision to donate the next question revolves around strategy. The good news is that most charitable giving comes with major tax benefits attached to them. But the overall investment strategy needed to achieve a continuous drawdown is based on two income generating asset classes; fixed income via term deposits and high dividend paying shares. In that sense, the investment strategy for philanthropy, given a large lump sum, will be very similar to a retirement income strategy. Suppose you do not have a lump sum to put away to support your charity, then you need to allocate a monthly amount from your overall income for charitable purposes. This latter strategy though does not provide for any meaningful tax benefits.
While each endowment plan investment mix differs according to their objectives, a common global theme amongst many that seek income include a healthy mix of fixed income assets (term deposits with varying maturities for the average investor) and high diidend paying blue-chip stocks with the ability to grow dividends further into the future. Some also include illiquid hard assets such as property, timberland and agriculture.
Individuals differ in their desire to give and how they want to be remembered. Some want to give to religious charities, while others have a fondness for their schools and universities. Whoever the end recipient, what is important is that you plan the financial aspects of your endowment or charitable activities, as much as you do your children’s education and your own retirement.
(Kajanga is an Investment Specialist based in Sydney, Australia. You can write to him at