David Torre, a wealth strategist based in Winter Park, Florida, and an adjunct instructor with the Edyth Bush Institute for Philanthropy & Nonprofit Leadership at Rollins College, has extensive experience working with family office clients on philanthropic planning. He discusses charitable giving options for family offices to consider:
What exactly is meant by ‘philanthropy’ in the family office context?
I think in the family office industry, there is sometimes some confusion about terms and definitions — for example, there can be a real disconnect about the word ‘philanthropy’ itself. The distinction between philanthropy and impact investing and planned giving is not always clear — they all kind of get mashed together.
For example, some people, when they say they are talking about philanthropy, really mean the end outcome: the grant that went out the door and the good it did in the community. This is great stuff, it’s wonderful. But what isn’t addressed is upstream of that: What assets go into what vehicles, in what manner, so that there are those funds later downstream for the grants to go out and do that great work? How do the assets get there in the first place? What’s the exit plan for each asset on the balance sheet, and what vehicle is being used to serve the philanthropic strategy?
Then you add in impact investing and ESG and values-aligned investing. These really aren’t philanthropy in the truest sense, but they’re adjacent to it. What falls under the rubric of philanthropy can be a little murky.
What’s the best way to start thinking about charitable giving?
When working with family office clients, I try to step back and figure out what the client really wants to do: What is the end state?
I’ve seen people who have used one vehicle and painted themselves into a corner. Six or seven years after the fact, it comes across my desk when they want to know how they can get out of one of these irrevocable vehicles. Maybe they have decided they want to give low-interest loans to entrepreneurs, but all their philanthropic dollars are tied up in this one vehicle. They didn’t spend the time to think through the strategies and goals and match the vehicle to that goal.
What charitable giving options should families consider?
Donor advised funds: One reason donor advised funds (DAFs) have been so popular is if you don’t yet have a strategy really planned out and you just want to get your deductions before the end of the year, it’s easy to stand up and get funded. Most of the big providers are pretty good with using more complex, non-cash assets. It’s a little bit of, ‘Build it and they will come.’
Charitable lead trusts and charitable remainder trusts: Families with more assets often look at vehicles like charitable lead trusts and charitable remainder trusts. The drawback of some of these vehicles if that they really depend on the economic conditions. For example, charitable lead trusts are much more likely to be successful in a low-interest rate environment. They are probably not at the top of the heap right now. The opposite is true with a charitable remainder trust, especially with an asset that has a lot of unrealized capital gains.
Private foundations: Private foundations can be another viable option. For some people, it’s really important to maintain the family name and reputation in the community, and they have a big enough pool of descendants that can staff a board for the foreseeable future. Foundations give you the most latitude to be creative. The downside is that they require the most overhead and the most hands-on management. I’ve seen families use both a foundation and DAFs: For example, they might use the foundation as the family vehicle to fund the causes they all share in common, and then each family branch has a DAF for funding the causes they don’t all share.
Direct donations: One other option that sometimes gets lost in the shuffle is going directly to the charitable institution to provide funding. For a really big legacy piece, such as endowing a scholarship at their alma mater or having the family name on the headquarters of a nonprofit, it may be better to just go directly to the charity and give a gift.
What’s your advice for getting started with charitable giving?
It depends on the person, and it can be a bit of a chicken-and-egg thing. Some people have very fully baked ideas of what they want to do: They know the charities they want to help and the causes they want to be involved with. Then we reverse engineer to achieve those goals.
I’ve also seen it the other way: Someone has sold a business, for example, and wants to start giving back but doesn’t know where to start.
I tell clients that philanthropy is a choice. If they want to do this, they can certainly take baby steps. That’s one reason the DAF is pretty popular: You can put in a modest amount and use it for a year, and if you hate it, you can try something else. A lot of clients are hesitant to even get started: They feel they’ll make a mistake or their skills aren’t up to par or it’s not enough money or it’s too much money. A DAF can help give people the confidence to say, ‘You can do this,’ and they can do it at the level that they’re comfortable with.
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