The Giving-While-Living Shift

A sense of urgency to solve global environmental and social issues is driving profound changes in how wealthy families are structuring their philanthropic plans. Traditional models, which aim to pay out charitable gifts for generations, are increasingly being replaced by plans that emphasise immediacy over perpetuity.

Three times the number of donors adopted giving-while-living timelines in the decade beginning in 2010, compared with the 1990s—38% of respondents versus 12%, according to a 2020 survey by Rockefeller Philanthropy Advisors in New York City. Of those, 76% chose to spend down philanthropic assets within 15 years, the survey found.

This trend is likely to continue, says Olga Tarasov, Munich-based director of knowledge development for Rockefeller Philanthropy. “There’s anecdotal evidence that the inequalities brought to the surface by the pandemic have accelerated this trend,” she says.

While the issues addressed by donors are the same regardless of time frame, environmental causes are particularly benefiting by the rising spend-down trend, Tarasov says. “When you look at reasons for giving, the environment is a higher priority for spend-down philanthropic plans.”

The giving-while-living trend is driven by a desire by donors to witness the impact of their gifts, says Dien Yuen, assistant professor of philanthropy at the American College of Financial Services. “The Gates Foundation started this and many have followed. They want to push money out the door now to see things in action.”

Tax planning is also a factor, especially during the longest bull market in history, when investors are sitting on enormous investment gains.

“There’s a big tax benefit to using securities to make gifts while alive,” says Andy Rosenberger, head of tax managed solutions at Orion Advisor Solutions in Omaha, Neb. “You don’t have to realize gains when you give them away and you create a charitable deduction that can offset income elsewhere.” When bequeathed at death, a charitable deduction isn’t permitted.

For folks who have a multigenerational charitable foundation but want to shift to a spend-down strategy within a shorter time frame, legal issues may have to be addressed.

“Charters of a foundation or family office often stipulate a timeline, and the default setting is in perpetuity,” says Tarasov. “But changing is difficult if a family is divided.”

Embracing Lifetime Giving

Most wealthy families aren’t committing to sunsetting all philanthropic assets by the end of their life expectancies, but are doing some of both—giving now and setting up foundations for giving over generations—says Caroline Hodkinson, head of philanthropic advisory at Bessemer Trust in New York. “There’s a spectrum, and most of our clients are in the middle.”

There is a notable difference in how clients approach giving during life versus at death, most notably, a stronger desire for both control over how gifted assets will be used and evidence of impact, says Crystal Thompkins, head of philanthropic solutions at BNY Mellon Wealth Management. “The lifetime mission involves a more dynamic conversation. Clients want to see diversity in leadership. Track records on success,” she says.

The Lifetime Giving Tool Kit

Lifetime donors must carefully weigh various charitable tools, Thompkins says. “It used to be that the uberwealthy focused on private foundations and donor-advised funds were considered only good for chequebook philanthropy,” she says. “But that’s shifting, because you can use donor-advised funds in really creative ways to meet lifetime planning goals.”

Charitable lead trusts are attractive when interest rates are low. Donors get a larger income tax deduction for the amount transferred to the trust when rates are low, Thompkins says.

The trust pays annual income to charity, and at the end of its term, remaining assets go to beneficiaries. They require in-depth planning because they have tax, estate-planning, and legal implications, Thompkins says. “That trust conversation has been deprioritized at a time where there is a sense of urgency around meeting need.”