One of the many benefits of having great wealth is the opportunity to help others who are in need of funds.
Many of American society’s loftiest tasks are funded by charitable contributions. Organizations caring for environmental issues and social concerns often depend on the kindness of the contributions of wealthy investors to survive.
While some investors do not contribute a great deal to charitable groups, for some wealthy investors, giving to charity is one of the key benefits of great wealth.
Spectrem’s study The Wealthiest Americans dedicates an entire section to the habits of charitable giving by wealthy investors. The study on the investment habits and characteristics of $25 Million Plus investors includes the list of how many investors donate and how much they donate annually. It also offers investors the opportunity explain why they do it.
“When people dream of great wealth, they imagine not only all of the fun new items they could buy for themselves but also the contributions they could make that would change the world for the better,’’ said Spectrem president George H. Walper Jr.
For advisors, understanding an investor’s desire to use their wealth to benefit society can improve relations. Knowing the best way for investors to invest funds to benefit social concerns would please investors who don’t want to see their money wasted. It requires some investigation, since some charities use their donated funds more efficiently than others, but the information would be appreciated by investors interested in helping out.
Asked to quantify their charitable contributions over a 12-month period, 90 percent of investors said they had made contributions and almost 20 percent contributed more than $100,000 in that one-year period. Twenty-five percent of the wealthiest investors contributed less than $10,000, while 10 percent said they did not make any contributions.
(For comparison, among Ultra High Net Worth investors with a net worth between $5 million and $25 million, 10 percent give more than $25,000, 46 percent give less than $5,000 and 6 percent give nothing to charitable groups).
Asked to estimate the recipients of their charitable donations over a three-year period, 20 percent went to religious organizations, 16 percent to colleges or schools, and 14 percent to social service organizations. Arts and cultural groups as well as hospitals and healthcare organizations each received 11 percent of the donations, according to the study.
In some (38 percent) of the cases, investors donate to the same causes every year. Almost 50 percent donate to the causes that elicit the strongest interest or emotions, and 11 percent donate to organizations that benefit individuals in Third World countries that are trying to improve their standing by working or starting their own business.
For most charitable organizations, there is a tax advantage to making the donation. Advisors need to be informed about the tax advantages to charitable organizations as it relates to each wealthy investor.
Investors can donate to charitable causes through their trusts and estate plans. From the Wealthiest Americans study, 27 percent discussed their wealth transfer plan with a charitable organization with an eye toward making a donation from their estate.
It is not necessary for wealthy investors to donate to charitable causes, and nobody needs to know whether the investors do so. But most wealthy investors have reasons for donating to charity, including a personal sense of social responsibility (54 percent) and being a worthwhile use of the funds they have (43 percent).
Some investors want their family to know about their charitable contributions as a way to set an example of their children and grandchildren as well.
Top Takeaways for Advisors
In the case of charitable contributions, financial advisors truly serve an advisory role. For those investors who want to donate but don’t know which organizations are best to give to, advisors can provide some direction. There are organizations best known for using donated funds well, with a tiny percentage used for administrative purposes. These are the ones wealthy investors are most likely to want to donate to so their funds serve the greatest possible function.
The understanding of charitable contributions as part of an overall estate plan is important to these wealthy investors. In some cases, planning many years prior to the contribution can be beneficial to the estate planning. Make sure the investor understands the legal and tax issues related to the contribution.
©2017 Spectrem Group