Warren Buffett and Bill Gates recently teamed up to form The Giving Pledge, a campaign designed to encourage the wealthiest people in the America to make a commitment to give most of their money to philanthropic causes. Milwaukee-based Robert W. Baird and Co., has released a white paper that encourages those interested in setting up private foundations to let end goals and missions drive their financial giving rather than tax laws and benefits.
“All to often we see individuals making charitable contributions just to get a tax deduction and then they move on,” said Chris Didier, wealth manager at Baird and co-author of the white paper. “What the white paper outlines is that it’s often better to decide on your mission, what you want to support and then have that mission drive your spending policy and asset allocation.”
The white paper, entitled “Move over 5% and let Mission Drive, was published this month and holistically addresses a new way of thinking about foundation set up and asset allocation of wealth, Didier said.
“It makes sense to think of charitable giving in these terms,” he said. Traditionally, donors who wish to set up a foundation will start working with their tax advisors and legal teams and form the structural components of the foundation, Didier said.
“If it’s a large organization they start adding staff and then they figure out how to invest the money that’s part of the foundation.”
According to Didier, the liquidity issues associated with setting up a foundation that way may hinder the foundation from providing the help organizations need when they need it.
“If your mission is to help unemployed people and suddenly the needs of unemployed people goes through the roof you want to be able to adjust for that,” Didier said. “Focusing on your mission, separate from tax law of five percent and creating spending policies that correspond with those missions may make your foundation more successful at adapting to the needs of your population.”
It’s different for every foundation, he said.
“It might make sense from a mission standpoint for a foundation to spend all of its allocated money within five years, or three years, or all at once,” Didier said. “That’s the premise of the paper though, wealth individuals should start focusing on the overall purpose of the organization, not tax laws that require foundations to give five percent of their net assets each year.
Didier co-authored the white paper with Dave Klenke, Baird planning and tax expert in Milwaukee; and Peter Frumkin, Professor of Public Affairs and Director of the RGK Center for Philanthropy and Community Service at the University of Texas. The white paper is available for viewing here.
