A Gifting Landscape

Northern Funds Center by E-mail

Gifting Often Worth More While You're Alive

New Ways to Give Have Changed the Face of Philanthropy

October 2007

Alexandra "Alex" Scott started selling lemonade in 2000 to raise money to help her doctors find a cure for kids with cancer.

The Connecticut native was 4 years old. Her efforts prompted thousands of others to get involved. When she died four years later, "Alex’s Lemonade Stand Foundation for Childhood Cancer" had raised more than $1 million. Her older brother, Patrick, her family and the supporters she inspired carried on her quest. As of June 2007, her nonprofit had turned lemons into $12 million for cancer research.

Alex embodied the new breed of philanthropist. Younger donors are tackling causes close to their hearts in their own communities. They use tactics borrowed from business — selling and marketing goods to profit a cause — and are rolling up their sleeves to squeeze lemons or to run foundations.

High-profile philanthropists illustrate this trend on a more global scale. Ted Turner threw down the giving gauntlet in 1997, when he pledged $1 billion to United Nations programs. At that time, he chided Bill Gates and Warren Buffet for not being more charitable.

Three years later, the Microsoft mogul raised Turner’s ante when he made a $16 billion gift to the Bill and Melinda Gates Foundation with an ambitious mission to stamp out inequities in health care and education around the world. As of June 2007, its endowment was $34.6 billion. And this included only the first $1.6 billion of a promised $31 billion gift from his bridge buddy, Warren Buffet.

Giving your money to solve the world’s problems has never been more popular. In 2006, the amount of charitable contributions reached a record-setting $295 billion, according to "Giving USA 2007". Almost 90% of households in the United States contributed to a charity.

Give and ye shall get
"More people are asking why should I wait until I die to make a difference. What can I do now?" says Marguerite Griffin, national director of philanthropic services for Northern Trust.

Those who want to do more than sign checks are increasingly turning to donor-advised funds (DAFs), which let individuals start their own charities with an irrevocable contribution managed by a sponsoring charitable organization. DAFs have become the fastest-growing charitable giving vehicle. In 2006, there were more than 106,000 such funds in the United States, up 21% from the prior year. They held $21.6 billion in assets, according to the National Philanthropic Trust.

"They offer an effective, uncomplicated giving solution," Griffin says.

The Northern Trust Charitable Giving Program allows individuals to make an initial contribution, give their fund a name and then decide who gets the fund proceeds each year.

Griffin cites some of the benefits:

Contribute now, donate later. You can make your contribution in one lump sum without writing dozens of checks. Then, you can make decisions about which organizations will receive contributions from your funds as your money grows tax-free.

Reap tax benefits up front. You get the full tax benefit of the contribution upon funding. Contributions to DAFs may also qualify for higher income tax charitable deductions than private foundations.

Help others without the headaches. Northern Trust handles all the administrative tasks. That includes making sure checks and letters are sent, processing grant requests, handling contributions to your fund and making sure your funds are invested in a manner consistent with your philanthropic goals.

Set a giving example for your kids. You and your children can act as advisors to your fund and make recommendations as to which charities should receive gifts. You can also name your adult children as successor advisors.

Get in the game with less money. The high start-up costs and administrative complexities make starting a private foundation out of reach for those without several million to donate. DAFs give you the flexibility and control of a foundation with much lower administrative costs and a lower minimum investment.

Attach strings. You can specify conditions on the grants from your DAF to make sure the receiving charities spend your donations in ways that are compatible with your own objectives.

Give it up
"DAFs relieve you of the administrative side of managing funds, so that you can focus on why you created the fund in the first place—to give money in a way that will make a difference to you and your family," Griffin says.

DAFs appeal to those who want to use their wealth to support charitable causes while they are alive and provide an opportunity for family members to participate in their philanthropic endeavors.

They allow you to get into giving in a more active way — whether that means helping the homeless, providing scholarships, protecting battered women or making lemonade.

Northern Trust Charitable Giving Program details