Best Practices of Charitable Giving

Seven principles to organize charitable giving - regardless of what the tax code may or may not incentivize - so prospective donors can make a difference while meeting their emotional need to help others.

This country has a noble tradition of generous giving, both individually and collectively. What is not clear — and vociferously argued — is to what degree the tail is wagging the dog; i.e. giving driven by the available tax deduction rather than for pure altruistic purposes. And with the debate about the deficit, the national debt and especially our dysfunctional income tax structure continuing to heat up, even the previously sacrosanct charitable deduction is on the table, perhaps to be swapped for a lower overall tax rate.

There is no question either way that human needs still exceed available resources. Unfortunately, there is also no question that there have been some abuses in the name of charity. So let's briefly review from a familiar “best practices” point of view a sensible way to organize the expression of our moral prerogative and emotional need to help others — regardless of what the tax code may or may not incentivize.

Among the many resources available to the prospective donor, Charles Schwab has a useful “Seven Principles” list that we might review. The first principle, logically enough, is to define where it is important for you to act: your personal charitable mission. Think long-term where you want to make a measurable difference.

Once you have done this, Schwab recommends for principle number two that you realistically assess what resources you can bring to bear — money, time and skills. Third, you can set up a plan, a structure to maximize the benefit of your intent. There are many ways to do this, including contributing to a pre-established charitable fund for (currently tax-free) holding and granting money — if you do not want the expense or hassle of setting up your own foundation — for one alternative example. Schwab, Vanguard, Fidelity and many others have done the paper and legal legwork for you, and you can go to their websites or call them for more info.

After you decide what your charitable interest is and what assets you are comfortable working with, big or small, then you can focus your giving for a specific goal, or goals, to be achieved. When investing for gain, all experts recommend diversification to decrease risk, but in charitable giving the reverse is true; we are encouraged to put all our eggs in one basket to maximize results.

I have written about the mild amazement that I experienced years ago when I went through this process and found that I had given to over 50 charities in the previous year, in mostly small amounts. This lack of focus and planning effectively minimized the potential for greater help that might have accrued. It turns out that the reason for this unconscious scattergun approach was that I just responded to the mail, or most commonly, friends' requests for support for some pet project or event as they occurred. You know, you scratch my back and then I'll scratch yours. In following this approach you are primarily greasing the social skids with expedience rather than a more useful planned approach to charitable giving.

For these potentially awkward pop-up occasions when a friend taps you, it helps to devise a brief and polite explanation that your charity efforts are already committed and, hopefully, that lets you off the hook. As in medicine, the immediate should not automatically take precedence over the important. Exceptions do occur, such as in the case of the recent superstorm Sandy.

Back to Schwab. The fifth principle is to seek out information from professionals and organizations to make the best use of available resources. Do careful due diligence on your prospective recipient. You know what they say about the road to hell being paved with good intentions. Check their tax status and check their financials. Not all charities are well run. There is waste, foolishness and fraud to be found just like any other kind of human endeavor. Especially after catastrophes like the above mentioned Sandy. Transparency matters. So communicate and build a relationship that will be rewarding to all involved.

Once you are comfortable with what you have learned, Schwab next advises for principle six to be careful to establish a metric to measure the effectiveness of your involvement, which can be used in a feedback loop for changes if they prove necessary. Yes, giving of yourself and your assets has great psychic rewards, but even more if you have concrete evidence that there are positive results working toward your mission.

Lastly, number seven on Schwab's list is an extension of this last point: periodically review whether your original mission continues to be the right one for you. Needs, assets and time availability, and people all change.

In spite of the old saw that “charity begins at home,” it usually does not. Virtually all religions and moral codes place a high value on giving to others in sorer circumstances. For instance, politician and education reformer Horace Mann said that “Doing nothing for others is the undoing of ourselves.”

Yes, practicing medicine is helping others, but surveys tell us that is not enough for most doctors. And I am reminded of one thing that Anne Frank wrote in her diary; “No one has ever become poor by giving.”