This is the second in a series of three articles to help you understand important options you may have regarding your personal wealth and the effects of income and death taxes on your estate.
Philanthropy consists of two important ideas: (1) the desire to give and (2) the means of giving. Whether we consider ourselves charitable or not, most of us feel strongly about something: The need for better education…. the importance of community…. the value of recreation…. the benefits of culture. This article will explore the connection between the “charitable intent” and social beliefs. The connection may be closer than you think.
When charities ask for a substantial charitable gift, many people reply, “I don’t want to give my money away.” This is a typical and very honest answer, but it is also a hasty answer. I want to talk to you here about what a charitable gift really means, and how you can answer this question for yourself in a satisfactory way. What is “charitable intent,” and how does it arise from the circumstances that surround you at this point in your life.
If charitable intent were something that we either had or didn’t have, it would be something that was genetic and it couldn’t be changed. We could say that a person is charitably inclined or he isn’t. But that isn’t how it works. Charitable intent is a learned experience that is based on the environment to which you have been exposed. Was charitable giving something your family did? Was it something that other significant people in your life did? If so, you are likely to have learned it and likely to practice it to some degree or another.
How you have been approached to act charitably. At some time a charitable organization has approached you by mail, phone, or some other way, and said, “Here’s our need. Please give.” And you may have responded by giving some amount for a need that seemed important to you. This kind of charitable giving is driven by an outside force – a charitable organization – rather than by the inside force of your charitable intent. This kind of giving is certainly welcome to charitable organizations, but it may not be the most fulfilling form of giving for you because it didn’t originate with you and, once you have given the money, you no longer control it.
As an example of how charitable giving can meet both financial and philanthropic needs, let’s suppose you are a business owner and want to pass the business on to the next generation, but you’re now facing all of the tax roadblocks associated with that transfer. You know you’ve built a business up over many years of hard work, and now, to pass it on to your children, you or your estate will have to pay a lot of taxes. You feel there ought to be a better way.
There is. It has to do with the wise use of your social capital – that part of your money you can’t keep. Ultimately you’re going to have to part with some of your wealth – one way or another – it must go to the society in which you live. We usually think of taxes as the means of “paying” that social capital to society; but there is another way that you might consider more effective and surely more satisfying.
Which way you choose depends on whether you want the government to direct your social capital (as taxes it collects and controls), or you want to direct it yourself. Government-directed social capital (taxes) is as absolute loss of control; self-directed social capital is, on the other hand, gaining control over a part of your wealth you thought you would lose.
You, the business owner in our example, want to pass your business to the next generation. In the process you know that some of your wealth will be social capital that you can’t keep. But you still want to direct it yourself rather than have the government direct it, because you don’t think the government is doing a very good or efficient job with your tax money.
The alternative to paying this wealth to the government in taxes is to give it away tax-free as a charitable gift to an organization that you support, and whose programs and activities you can, in some degree, influence.
What organization might that be? What sort of programs and activities might it offer? The answer lies in the question posed earlier: What do you feel strongly about? What specific things in your community or, perhaps even related to your family and future, would you want those dollars to go toward? What moves you? What do you think needs fixing in your town? What’s missing in your community? What makes you angry?
The answers to those questions provide a clear direction for your social capital. Sure, you can sell your business, pay a huge capital gain tax, watch the value of your life’s work shrink, and see the balance go off to Washington and Sacramento where you will have no say over how it is spent. Or you might consider giving the business to a charitable organization – it could even be a community foundation – on a tax-free basis. The gift could easily be set up so that you could receive a lifetime income from it, not to mention a considerable charitable deduction on your income tax. What’s more, the gift could go to any qualified organization, cause or program you believe in, so you have absolute say as to where the money goes.
In the end, not all of us are charitably inclined in the very best sense. Nonetheless, we all have strong feelings about something in our world, nation or community that needs support. Charitable giving is the ideal means to provide that support and serve our personal and family needs as well.
The author wishes to acknowledge Renaissance Inc., for some of the supporting information and concepts used in this article. All were used with permission of Renaissance Inc.