S1 E3 – How Strategic Philanthropy Helps Wealthy Families Thrive

(upbeat music) - Welcome back to the R Family Office podcast. I'm your host, Adam Fish. And today, the topic is philanthropy. I'm joined by Connor Kelly, a client advisor at our Family Office. Connor, thanks for being here. - Thanks for having me. I'm excited to talk about philanthropy on the podcast. - So this is something that is really important to our family office and to many of our clients. So to start with, let's talk about how we as a firm think about philanthropy. And it's really in the context of the capital pyramid. Walk us through it. - Absolutely. So the capital pyramid is a way we think about all of our clients' funds. And they can roughly be put into three different buckets. The financial independence capital, that's the very bottom layer of the pyramid. That's the first, let's talk about what that is. So that is kind of family wants to write. Most important is family sustains their lifestyle. They can continue living their life, how they've lived throughout the course of their lives. Make sure, basically, you don't run out of money, you don't have to change your life throughout, however long, hopefully a long and healthy life. - That's right. So you can think of the financial independence capital as like your Maslow's kind of funds, it addresses all your life needs. So the goal, obviously, for everybody is to have those addressed. And then once we've satisfied all of our physical life needs and things like that, we move up to a higher level and that would be the legacy capital. The way we think about legacy capital is any money that you're not going to spend in your lifetime on yourself. You could leave that to your ears. That's going to be kids, grandkids, nieces, nephews, et cetera. - And that's a conversation or a lot of conversations that we have with clients around what do you want to leave? Clients that are fortunate to have kind of the choice of how much do they want to leave to the next generation? And that goes back to individual situations, family relationships, dynamics. And we work with our client families on getting the next generation educated, prepared to be responsible stewards of those funds so that whatever they decide to leave behind, it's going to be looked after the next generation. It's going to make their lives easier rather than harder. It's going to make things better for them. That's really what our work is really focused on. And then, of course, the next level, once your needs are met, once the next generation's needs are met to your satisfaction, then we have social capital. - That's right. In social capital, the way we think about this is, again, we've talked about your lifestyle needs, giving to your kids, then what's left is you're going to give money back to society. Typically, the way we, as citizens interact with this is you pay taxes to the government, the government then decides where those funds should go to benefit society. Sometimes you agree with it, sometimes you don't. The beautiful thing about social capital and doing strategic philanthropy, is we get to help the clients direct those funds to causes that are more impactful and more meaningful to them. And so, this still benefits society, but it has a more personal impact on the client. - Yeah, so let's expand on the term strategic philanthropy, 'cause giving, you think about as philanthropy, but strategic philanthropy is something that we spend a lot of time on. And that's a term that someone, you know, a listener might not be familiar with, might not really understand, well, what does it mean to be strategic about philanthropy? So, I think we really think about it in three ways. One is giving that is impactful, that is meaningful to the client, right? That's a personal thing. We help clients figure out what that'll mean, but it's, how do you give in a way that's meaningful rather than just, okay, you're giving when asked and that's just kind of it? One is, the next is sustainable giving, right? You can give in a way that is gonna last for generations. That could be kind of in a foundation, that sort of thing. And then the last is giving in a tax-efficient way. So how do you give in ways that are going to maximize the gift and, you know, and may even allow you to give more? So if we think about those three areas, let's start with intentional giving. So talk about what we think about, how we help clients give in an intentional way. - Yeah, and I'm gonna draw on a specific client example and walk you through a bit of a story. So I had a client approach me a number of years ago, just about this topic about philanthropy. And she was a little bit upset because we were doing the taxes at the end of the year and she realized she had, you know, over a hundred different donations to various charities. And that just naturally sort of arose through, you know, various dinners you go to, door to door solicitors. You know, things just pile up. There's a $30 draw on the credit card every month. I don't look at it. - And for wealthy families, you know, that is very common. You start giving, you end up on mailing lists. And, you know, then those requests come in and they really, they never stop. Which is, you know, you understand it, but it can be overwhelming. It can be, you know, just a lot of mental stress, just to think about where am I giving that kind of thing. - That's right. And one of the issues the client came to me with was, she felt that there's a lack of control. And, you know, when you're unsure about something, and it's just sitting there in the back of your head, it really eats into your kind of mental free space. So what we ended up doing with the client is, we took a look at all of the donations that she made throughout that year. And we bucketed them into broad categories. Examples being, you know, health, outreach, animals, environment, education, things like that. And what we did, and what we found after that analysis was, she was giving to a broad range of different buckets, and it turns out it's not necessarily the buckets that she had wanted to give to, or things that she felt were personal to her. And so after realizing that, we developed what was called a strategic allocation. And so in the investment world, we're all familiar with an investment allocation, or an investment policy statement in IPS. And so what we ended up doing is creating something similar, called the strategic philanthropic allocation. So coming back to those buckets of outreach, health, animals, et cetera, you decide what percentage of you're giving throughout the year you want to go to each different bucket. And by doing this, we're a little bit more focused. The goal for this specific client was to reduce the, you know, what I would call an administrative nightmare, and the headache of all these different donations, and really focus that down, pair the amount of donations down, and make them a lot more impactful. So we started identifying, you know, the final allocation for this client ended up being 70% health, 20% outreach, and 10% animals. Now that's not a hard and fast rule. Obviously things come up in, you know, you can give to whomever you want if the situation arises, but that's generally what we're aiming for and what we aim for throughout that year. - So it's the idea of, you know, if you go and look back and say, well, I gave, let's say, $50,000 to various health-related charities, but I gave it to 20 different charities 'cause I asked. And instead you're saying, well, I'm gonna give, I'm still gonna give $50,000 for health-related charities, but I'm gonna give it to two or three in a more concentrated and a more intentional way. - And that's exactly what we did. So the client ended up doing a very large concentrated donation to the Cancer Research Society that year, and they ended up matching her donation, which resulted in them creating a research program to research the cancer that took her late husband's life. - And what I think is so important about that is, you know, giving is very nice and it feels good. And there's, you know, all kinds of science that ties philanthropy to happiness and those sorts of things, which is great. But to just give kind of, on an ad hoc basis, is often not as meaningful because it's just kind of, okay, I wrote a check and then it, you know, that money kind of disappears into the pool of whatever that charity is, as opposed to if you're being really intentional about it, and you go through a process of saying, all right, which chair, do I wanna give to a large national charity? Do I wanna give local? Do I wanna give to a big charity or a small one where I can, you know, point to a specific project that the charity did as a direct result of my donation? You know, there's no right or wrong answers to these questions, but if you ask them and we, you know, we ask them of our clients and help go through this process, it facilitates a client giving in a way that really resonates with them personally. So the personal impact is as large as it could possibly be. And the other side of it is when you streamline this process, of course, like you said, you could always, you know, write a check when something comes up, someone knocks on the door and, you know, or there's an emergency campaign, whatever. But by streamlining it, it also just relieves that mental load. And so much of the work that we do with our clients is about, okay, you've made it, right? You've achieved this success. You're financially free. How do you make your life easier? How do you sleep better at night? How do you just make things simpler and have less stuff on your mind? And this speaks directly to that. That's right, and one of the other pieces you briefly touched on there was ultimately, where are these funds going to? And that's something that we help the clients with. So, you know, you've identified Hey, I want to spend this, you know, imaginary $50,000 or donate $50,000 to health each year. But where does that end up going? We all know about very large multinational charities who raise a lot of money, but ultimately, you know, maybe one or two cents on every dollar raise goes to the ending program. So that's one of the things we help parse through with our clients once we've identified areas. And they might not necessarily know where to give. But within that area, we can help them identify various charities. And one of the services we use is called charity intelligence. It's a trusted expert in Canada, just on evaluating charities from a financial and social impact lens. And so what we end up doing is we look up different charities in areas and we evaluate them based on needs, funding, impact. And a lot of times you do find these smaller, more local charities have a greater need and ultimately result in a more personal impact for the client as well. Yeah, so we go through this exercise where we help tease out from clients what's going to mean most to them from a broad kind of area of giving perspective. We help present options to clients so that they're making more intentional, more meaningful decisions to them on which charities to give to. And then the next piece is about what kind of sustainable giving legacy you want to build. So when we talk, we, a number of our clients have family foundations. And we look at that as, you know, that can be a way to involve the broader family in giving, you know, whether it's private public foundation, there's, there's different options that we can present to clients and help them get set up with them. But we help a number of our client families with, how do you involve the next generation in that giving, right, both to teach them kind of just good governance because it's a, you know, a charity, a nonprofit of foundation is a business. It's a nonprofit business, but it's a business. And so, right, you can have the next generation, you know, sit on the board of your foundation and, you know, attend quarterly meetings and make pitches for where it should get allocated. And, and then the other piece is you're then passing on those values, right, so much of the work that we do with families and multi-generational wealth is around shared values. And involving the family at an early stage in giving allows, you know, the, the older generation to pass on those values to the next. Yeah, I agree with that. That's one of the reasons you really love the foundations. We call it the training wheels for the next gen, allows you to teach them the, as you said, the financial stewardship without necessarily, you know, bringing them all the way into sort of the fold and, you know, telling them all about the family business. Maybe it's not appropriate to do so if they're, you know, a six or seven year old, but you can still teach them money lessons through the foundation. And then the, the last piece, of course, that kind of overlays all of this is, is tax efficiency, right? How do you give in a way that is going to maximize the, the dollar impact of the charitable giving? And, you know, it's going to reduce taxes if that's something that matters to you. Now, you know, this is from a Canadian perspective, but it is true in a number of other jurisdictions. All right. You can, just as an example, you can donate securities and, you know, it'll save you tax in two ways, compared to just, just donating cash. So Connor, as the, you know, as the CPA in this discussion, give us a brief overview of just kind of big picture how that works. For sure. So in this example, we'll just say we have some Apple stock, I have one share, and it's currently worth $100. And so if I were to donate that today, I'd get $100 donation tax credit in broad strokes. One of the nice things is, is maybe I didn't buy that Apple share for $100. Maybe I bought it for $20 10 or 20 years ago. And so in, in the normal course of business, if I were to go and sell those shares, there would be tax to pay because there's a gain. But the nice thing is with the donation, I'll get my full $100 of donation credit, and I won't be on the hook for the whole tax bill of that gain that I enjoyed on my Apple shares. It's a way to still donate to charity, but you can also avoid or defer some taxes depending on the strategy, so it makes it a lot more tax-efficient in that way. And this is in my mind, this speaks directly to what we do as a family office in terms of integration, right, is that we're thinking about philanthropy that's meaningful to the family, we're thinking about preparing the next generation and involving them in sharing the family's values and in making donations, we're thinking about the tax impact that's specific to a client family, right, all of these pieces work together. And so we, as a group, are always thinking about, okay, how do these parts talk to each other, and how do we align them in a way that they're all steering in the right direction? Yeah, integration, and nothing is an asylum, which is great, and we make sure that this is a lot more impactful, if you decide to give out of the social charitable bucket, we want to make sure that that money is the most impactful, and we respect kind of the legacy you're trying to create with your family. Hunter, thanks a lot for this discussion, this is fun. Thank you. I hope you enjoyed today's conversation. Thank you so much for listening. Our family office is Canada's first purpose-built shared family office, and the our family office podcast is produced by Henry Schoo. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to like, comment, and subscribe so you don't miss an episode. See you next time. The information in this podcast is presented as a general, educational, and informational resource only. While certain participants in this podcast may be registered to provide investment advice as a representative of our family office Inc, itself a registered firm in certain Canadian jurisdictions, this podcast does not provide individualized investment, financial planning, legal, tax, or insurance advice, nor is it meant as a recommendation to any listener to buy or sell any specific securities or otherwise take any other investment action. Any action you may take as a result of the information presented in this podcast is your own responsibility. Our family office Inc and each of its representatives that participate in any podcast, claim that any listener should rely in any way on any of this content as investment, tax, legal, or insurance advice. Listeners are encouraged to consult with their individual investment advisor and other financial professionals prior to taking any potential investment actions or making any insurance or tax decisions.