When does giving through a foundation make more sense than donating directly to a charity?
Many Canadians who donate to non-profits each year will share their generosity directly with a recipient charitable organization. So, it’s not surprising that one of the first questions they ask is why they would be better donating through their Canada Gives Foundation account instead of cutting a cheque directly to their preferred cause.
After all, isn’t making a donation to a charity the simplest form of philanthropy that requires the least amount of effort?
In many cases, that kind of direct one-time gifting makes perfect sense. Those circumstances might include an acute crisis where an organization requires a quick infusion of cash to help support an affected community. A prime example would be donating directly to a disaster-relief charity in the wake of a major weather event. Many Canadians reached out to support the Bahamas following Hurricane Dorian last year, for example, while one of our donor clients established a Canadian foundation to aid relief efforts for smaller islands in the region. We’ve also seen a huge outpouring of direct support to help charitable organizations in the wake of the COVID-19 pandemic, which has caused major economic disruption and sent shockwaves across our sector.
One point on which we can all agree: non-profits will always welcome financial support, no matter how it arrives.
But in the case of managing large gifts, a foundation has many advantages. First, it buys time for a donor to develop a strategy for their giving and provide sustainable financial support to charities. And following a strategic plan for their giving enables a donor to enter into more meaningful engagement with their charities, and better understand how they’re making a difference. For that type of philanthropy, donors often require assistance with their philanthropic planning and the administration of their gifts.
Case in point: our client service team is dedicated to helping philanthropists define and explore their charitable interests and develop a giving plan that can focus their support on a key list of charities and/or cause. We often help them identify a potential list of recipient charities, vetting those organizations to ensure values alignment (among a range of other criteria); empowering them with the information they need to make informed granting decisions.
That’s especially important at a time when many high net-worth Canadians are moving away from simple cheque writing. Foundations and donor advised funds have been growing rapidly over the past 10 years, while individual gifts to charities from these households are declining.
Why? Increasingly, major donors want to know their charitable dollars are well spent and making an impact. Many not only want to make a financial gift, but also give their time, talent and ties —to help ensure the success of the charities they’re funding. With a foundation, donors have the opportunity to better explore how charities use the funds they receive, while gleaning a more comprehensive understanding of how they create positive change across the community. Once they see those transformative results, they gain the confidence to make the kind of multi-year funding commitments that are the financial lifeblood of the non-profit industry. Sometimes that also includes pledging estate or insurance gifts.
Those long-term gifts not only provide a strategic roadmap for the donor, but wind up being a better use of funding because they allow the recipient organization to make longer-term projections for their programs, while helping them set capital and other expense budgets with greater certainty.
The benefits of a foundation don’t end there. A one-time donation is just that—a quick infusion of cash that is used by the charitable organization. But a Canada Gives Foundation account can also grow its charitable assets—side note: we encourage our donor clients to recommend their own wealth advisors to manage the growth of investments within their Foundation accounts. By investing the portion of donation(s) that are not immediately deployed, the size of the original gift(s) can grow considerably. That amplifies the financial impact of the gift, enabling donors to give away exponentially more money than would be possible with a one-time gift.
A Canada Gives Foundation account also offers donors the choice of anonymity with their giving, which is especially important for high net-worth individuals who donate substantial funds and prefer financial privacy, as well as limiting the volume of donation requests from charities.
And the reporting that comes with having a Canada Gives Foundation account also has benefits. Much like running or managing a business, it’s only possible to make informed decisions with accurate and up-to-date data. With a direct donation to a charity, it’s far more difficult to quantify results, unless the funds are used to fund very specific expenditures such as facility upgrades or equipment purchases.
And with that information and long-term approach comes the ability to better engage your family in philanthropy. Quantifying results helps show your kids (or grandkids) the kind of impact you’re making on the lives of others. In many cases, children will become engaged in their family’s giving and will even get involved in the grant-making decision process. That culture of charitable giving will typically be instilled across generations, creating a lasting (and very rewarding) family legacy.
The bottom line is that any type of charitable gifting is good. But if its reach and impact can be expanded by using a foundation as a philanthropic tool, then the latter is an approach worth considering.
The Canada Gives Team
