While one of the motivations for charitable gifting can be tax savings, oftentimes the most meaningful benefit arises when donors realize how their charitable giving benefits sectors of society where their contributions have meaningful and sustainable impact.
Recent years have seen an increase in wealth in private foundations, as well as charitable causes. As a result, many families have increased their giving and made changes to their donor intentions.
Below are six trends we have seen emerge in our work with private foundations.
1. Governance
There’s a renewed focus on current and future governance structures as families both examine and enhance their giving strategies. When it comes to to family foundations, engaging younger-generation family members to participate as part of the board (or involving professional trustees) to create learning and development platforms has materialized as a common theme. As noted in the 2020 Trends and Strategic Time Horizons in Philanthropy report, “the large majority of the next generation were either actively involved (42%) or somewhat involved (39%) in their families’ philanthropic activities.”
The 2022 Trends and Strategic Time Horizons in Philanthropy report found that more than half (54%) of family-led foundations surveyed are being led by second generation individuals—most certainly a continuing trend. While not a part of the research, we believe that the involvement of younger generation family members often leads to a re-examination of a family foundation’s purpose and, as described below, the intentional spend down of assets of the foundation.
2. Spending Down vs. Perpetual
More and more private foundations are considering their options of spending down their assets over a specified period of time, as opposed to existing in perpetuity. Some of the common reasons cited for spending down a foundation include the following:
- The belief that goals and objectives will be more clearly defined
- A commitment to larger financial support tends to endow the charity’s purpose
- Protecting the donor’s intent, also known as “giving while living”
- Insulation from loss of momentum
3. Tax Considerations
Recent legislation changed the scaled 1%-2% tax on foundation net income to a blended rate of 1.39%. There has been some congressional discussion and lobbying related to increasing the tax rate in concert with required increases beyond the current 5% distribution requirement.
While we follow those views and the legislation, our belief is that we are unlikely to see increased taxes on foundations beyond the current 1.39% of net income. An interesting aspect of these events is that they tend to be raised by philanthropists themselves as a way to encourage greater charitable giving.
4. Due Diligence
Developing metrics, where appropriate, has become a prevalent practice for donors looking to measure the impact of their contributions. For example, measuring things like the number of meals served, or grade point averages of students receiving grants are becoming common practice.
We’ve also witnessed a broader focus on “grantee due diligence,” which includes a review of the charity’s key financial, compliance, and operational documents. This review often leads to analyzing metrics related to attrition, donor concentration, cash reserves, and technology resilience (among others). Risk mitigation is a common driver of this work and can inform granting decisions, as well as donor reputational and compliance concerns.
5. Infrastructure Funding
Fortunately, over time, many donors have learned that program success in a sustainable charity requires an investment in organizational infrastructure development. In the past, donors and grantees alike aimed for program costs to exceed 90% of an organization’s expense. More recently, a new trend has emerged, whereby donors are not only targeting program costs to be less than 90%, but have also been increasingly inclined to provide unrestricted funding to support infrastructure development.
6. A Desire to Make a Difference Now
Lastly and notably, the 2022 Global Trends and Strategic Time Horizons in Philanthropy report also found that about three quarters of respondents “cited a desire to influence social change as their top motivation for philanthropic giving, with nearly two-thirds (64%) wanted ‘to give back to society’” with more than half (57%) of survey respondents indicating an “‘urgent need’ as a motivating factor” to do so. We only expect this trend to grow, as social issues continue to expand and are continuously brought to the forefront of our lives through various media.
