Philanthropy for Entrepreneurs
The impact of the global pandemic on the economy will change the business world for decades to come—and for some businesses, the unsettling change is a positive. In a surprising number of cases, COVID-19 has been an accelerator of innovation and the reason some Canadian entrepreneurs decided to pivot and adapt their businesses to evolving needs. As a result, these entrepreneurs have found profitable new ventures.
This success is good news for the Canadian economy and may also prove positive for charitable organizations that have been in high demand over the past several months while facing the same challenges as the business world.
Entrepreneurs who are experiencing newfound stimulus in their businesses may be looking to enjoy the fruits of their labour by reinvesting in their business or giving back to their favourite charitable causes. Whether giving individually, through their business, or both, there are several options when planning philanthropy for entrepreneurs.
One-time giving is simple but may be short-sighted
Perhaps the most straightforward method of giving is simply cutting a cheque and making a one-time payment to a preferred charity. But, if there’s one talent entrepreneurs share, it’s a knack for making every dollar work extra hard, and a one-time gift might not give them the impact they’re looking to achieve. Although a one-time donation is always appreciated, it may be less effective for charities aiming to solidify longer-term planning and the donor may be missing out on considerable tax advantages.
Consider the pros and cons of starting a private foundation
Another option is to start a private foundation, which provides the donor with many benefits including control over where funds are invested, how grants are disbursed and certain tax advantages. Typically, a private foundation is administered by professional advisors but the fiduciary and public responsibility for everything done in the foundation’s name lies with the foundation and, practically speaking, the donor or their designate will be taking on that work. There are many factors a busy business owner should consider before starting a private foundation, and perhaps top of that list is the time and resources required to organize, manage, and run a foundation.
A Donor Advised Fund provides flexibility and control
Yet another option for entrepreneur philanthropy is establishing a Donor Advised Fund (DAF). As a giving strategy, a DAF offers all the same advantages as a private foundation but without the administrative headache, cost, and publicity. A DAF is commonly known as an efficient way to give. What this means is that the donor is released from the set-up and ongoing operating costs that come with starting a private foundation, allowing more of the gift capital to go directly toward doing charitable work without having to divert funds to cover operating costs or deal with the administrative headaches.
A DAF also provides flexibility. This means the donor has more giving options that allow them to invest in a range of non-cash assets to their fund, which may include cash-equivalents, publicly traded securities, stock, shares, gifts-in-kind among others. It is a good idea to consult a professional advisor to understand the best way to make a gift of non-cash assets to eligible causes now and over time.
Enjoy greater influence over granting today and tomorrow
One of the most appealing attributes of a DAF for many entrepreneurs is the ability to recommend which causes will receive their support and when that support will be granted. Once the donor has requested a grant go to a particular organization, the foundation managing the DAF will confirm the recipient is qualified to receive the grant and ensure the funds are directed to support a specified purpose. This gives the donor the opportunity to support the causes that are closest to them now and make adjustments over time.
The funds in a DAF have the potential to grow tax-free, making the amount of money available for granting even greater. The combination of tax-free contributions and growth potential make donor advised funds a favourable option for current and future financial and philanthropic planning—as opposed to the one-time gifting option mentioned earlier.
A giving vehicle with more ways to give
Most donors are interested in maximizing the impact of their gift, which may include supporting more than one cause. With a DAF, supporting several charitable causes with a single gift is not only possible but it is also quite simple. Because the funds in a DAF are managed by a qualified organization, the donor simply makes a single contribution to the DAF and the organization distributes the grants in consideration of the donor’s wishes. The donor has the option of topping up their gift amount at their discretion, make recommendations on future granting, and will receive a single donation receipt for each contribution into their fund.
For entrepreneurs who don’t have the time to sit on several charitable boards or start and manage a private foundation of their own, a Donor Advised Fund is a sound philanthropic strategy. The first step for donors is to consult their financial advisor and discuss the options before finding the right donor advised fund program for them. The knowledgeable team at Gift Funds Canada can support this important planning stage with expertise for both the advisor and the donor. As many entrepreneurs know, getting the right people in the room (or video call) is a great first step in any new venture.