Monday, June 19, 2017

How to Make Giving Part of Your Financial Plan With Vanguard Charitable

We all want to do good. Part of doing good, at least for my wife and I, is to support charities that help those in need.

While it sounds simple, charitable giving can present some obstacles, though.

vanguard charitable

How do we get started? What tools can we use to helps us choose the right charities? How do we incorporate giving into our overall financial plan?

To help answer these questions, I turned to Vanguard Charitable. Vanguard Charitable is a donor-advised fund where my wife and I have had an account for several years. It’s proven to be an excellent vehicle for donating securities to the charities we care about most.

In this interview, we have Rebecca Moffett and Ann Gill. Rebecca is the Chief Strategic Planning Officer of Vanguard Charitable. She oversees the marketing department as well as the research and strategy department, which focuses on making sure that individuals understand the value of a donor-advised fund.

Ann is the Chief Philanthropic Officer and oversees Vanguard Charitable’s Ultra-High net worth group of donors. She also visualizes different ways Vanguard Charitable can grow its impact by helping individuals, institutions, and the growing populations of other financial advisors.

Through their expertise, Rebecca and Ann do a great job at making charitable giving something that we can all see as an attainable goal in our lives.

Topics Covered in the Interview:

  • What is ultra-high net worth?
  • What is a donor-advised fund?
  • What are the different types of charitable tools?
  • What does Vanguard Charitable have to offer?
  • What assets can be contributed to a donor-advised fund?
  • Requirements to open a Vanguard Charitable account
  • Value of leaving a “giving legacy”
  • Tools that help evaluate a charity
  • Coming up with a charitable mission statement
  • Tools to help find charities that support certain specific causes
  • What are giving circles?
  • How to incorporate giving into an overall financial plan

Resources Mentioned in the Interview:

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Here’s a transcript of the podcast interview, for those who would like to follow along:

Rob: Rebecca and Ann, welcome to the show.

Rebecca: Thank you so, Rob. We’re happy to be here.

Ann: Yes, good morning.

Rob: I am so thrilled to have you guys from on the show. has been a big part of my wife’s and my giving for a number of years. I get a lot of email from folks about charitable giving, wondering how they should do it. Sometimes it’s specific to donor-advised funds but I’m thrilled to have you on the show. Why don’t we start with each of you telling us what you do at Vanguard Charitable? Rebecca, why don’t we start with you?

Rebecca: Sure, thanks Rob. My name is Rebecca Moffett. I’m the chief strategic planning officer at Vanguard Charitable. I currently oversee both the marketing department as well as the research and strategy department. What we’re really focused on is making sure individuals understand the value of a donor-advised fund, but also digging into some of the macro-behavioral insights around philanthropic giving and trying to make giving easier as a result of those insights, and providing information to the business to make really great business decisions.

Rob: Great. Okay, Ann?

Ann: As you can imagine from Rebecca’s intro, I am the chief philanthropic officer, partnered very closely with Rebecca and her team. I oversee our ultra-high net worth group of donors, as well as thinking about different ways to grow our impact, whether that be with individuals, institutions or currently, a growing population for other financial advisors. We partner very closely.

Rob: Ann, I just have to ask, what’s ultra-high net worth?

Ann: Ultra-high net worth, we define as account balances here at Vanguard Charitable. So, if you maintain an account greater than $1 million you would be on that ultra-high net worth team of representatives and service officers.

Rob: Okay. Well, that gives me something to shoot for. Good. I want to kind of break this into two different pieces. I want to learn about donor-advised funds and talk about them. Then I want to talk about some questions I suppose are more general in nature when it comes to giving. So, to start, can you guys give us some background on what the donor-advised fund is?

Rebecca: Sure. A donor-advised fund is a charitable tool. Other charitable tools could include a charitable trust, private foundation, and charitable annuities, but it’s a charitable tool that can help individuals be thoughtful and plan-full with their giving. It’s really similar to how a 529 plan can help individuals be thoughtful and plan-full in saving for college.  And the way that it works is, an individual can give a larger-sized contribution and with that contribution, they would receive an immediate tax deduction. The reason is, when they give it to Vanguard Charitable, Vanguard Charitable is a tax-exempt charitable organization, so they receive the full tax deduction upfront. That contribution can then be invested among various investment options the donor-advised fund may offer. At Vanguard Charitable, we offer 14 different investment options, invested in a variety of different underlined Vanguard funds. The individual can then name the fund. They can be as creative as they would like with naming that fund. They can name it after their family. They can name it in memory of someone. They can even call it the strawberry cake fund if they would like. (Laughs) They can name it whatever they wish. And they can include a number of different individuals in that account. They can have an account advisor to help them with advice on that account. They can also involve their children if they would like, by setting up a legacy plan for the account so it lasts in perpetuity. Once those assets are in the account and invested, the biggest joy of having the account is recommending grants over time. So, an individual can decide they would like to recommend a grant to their favorite charity. They would then submit that recommendation to us and we would do all of the due-diligence to ensure that the charity is in good standing with the IRS, that there is no personal benefit going back to the donor, and then we would send that check to the organization on their behalf.

Rob: The term that stands out to me in that is that you can recommend a grant. I know when I was setting up our donor-advised fund at Vanguard Charitable that gave me some concern. I thought to myself, “Wait, if I ‘recommend a grant’ to a charity that’s important to me, can Vanguard Charitable — or any other donor-advised fund — say, ‘No, we don’t think so. We don’t like that charity.’?”

Rebecca: That’s a great question and it’s one we get often from our donors. The word “recommend” is important because when you set up your account, the assets do become Vanguard Charitable assets, which is how you received that tax benefit. However, I think it’s crucial to keep in mind that Vanguard Charitable, as well as many other donor-advised funds, are “cause-neutral” so we’re not looking to see whether we align with the cause or the organization you support. What we’re looking for is to ensure that we can protect you in making sure the organization is a tax-exempt organization and that there is no personal benefit going back to you as you already received the full tax deduction.

Rob: I should say, you guys (Vanguard Charitable) have never turned down one of my recommendations.

Rebecca: We approve the majority of recommendations. That’s for sure.

Rob: If someone were to open up a donor-advised fund, what kind of assets can you contribute to the fund?

Rebecca: You can contribute a variety of assets. Appreciated securities are some of the most popular assets that get contributed to Vanguard Charitable. We have a full team here who can handle the acceptance of those securities that get invested into your account. We also receive direct cash — transferred from mutual funds. And then, on a case-by-case basis, we may also accept some assets that would be in a category we would consider special assets, like restricted securities and hedge funds, for example.

Related: 4 Hidden Fees of Mutual Funds

Rob: Yeah.

Ann: Life insurance policies would be another example that people often don’t think about when thinking about the types of financial assets they might consider contributing.

Rebecca: And Rob, I think it’s important to note from the appreciated securities side, one of the benefits to giving appreciated securities to charity is that the donor does not incur the capital gains tax.

Rob: Right.

Rebecca: So, they can transfer that “in kind” to us and then we can handle the full selling and liquidation of that asset on our side.

Rob: Right. And as you said, the money gets invested in — I think you said the donor has 14 different investment options at Vanguard Charitable. And they can decide when and how much to recommend in grants. They could wait years if they wanted to? Before making a recommendation?

Rebecca: They can. That’s exactly right, there is no annual requirement for an individual to recommend a grant out of their account. However, we do have a business policy where donors do need to recommend at least one grant every 5 years out of their account.

Rob: Is there a minimum to open up a Vanguard Charitable account?

Rebecca: There is a $25,000 account minimum and subsequent contributions are $5,000. And, the minimum grant size for us is $500.

Rob: I take it other donor-advised funds have different limits?

Rebecca: They do, yes. You’ll find that Vanguard Charitable minimums do tend to be on the higher side. That’s important to us, especially on the $500 grant size. We feel that a $500 grant does help to make an impact at a charitable organization and the overall minimum helps us to keep our overall costs low.

Rob: One question that comes to mind is why would anyone really need a donor-advised fund? Why not just give money or assets directly to the charity?

Rebecca: That’s an interesting question. It really depends on what somebody’s overall giving strategy is. A donor-advised fund really allows somebody to be thoughtful in the short-term and in the long-term term with meeting their giving goals. For example, if you are planning on saving for a given purpose—there’s something in your community that you’d like to be a part of whether that is renovating a community building or saving for a park, you can use a donor-advised fund to be able to contribute into that account annually to save for that “giving goal” while also continuing to support some of your near-term goals. So, if you have a commitment to giving to your church annually, giving to some arts programs or maybe a food bank, you can still do that while using the donor-advised tool and the investment strategies it provides to save for that bigger goal down the road.

Rob: Right.

Ann: In addition, I would say the other value is that you can leave a “giving legacy” with a donor-advised fund, which is different from just giving directly to charities every year. So, you can set up a succession plan for your philanthropic account that can either be passed to your children, friends, or family, or it can be distributed to charities either in a lump-sum or over time. So that even when you’re gone, you’re still able to make that commitment to charitable giving over time.

Rob: The other thing for my wife and I is that it’s made it easier to give appreciated stocks and mutual funds, particularly to charities that aren’t really equipped. Larger charities are equipped to handle securities but smaller charities really aren’t. There are some charities where, if you gave them Apple stock, they wouldn’t have any idea what to do with it. With you guys, the money’s invested while at Vanguard Charitable, but when a recommendation is made, you liquidate the investments necessary and just send a check? Is that correct?

Ann: That’s exactly right. It makes that area easy for the charity (whatever their size) to accept the funds and be able to use them immediately.

Rob: Okay. Let’s turn to a different direction. Some folks listening may be interested in donor-advised fund, and some may not. Regardless, how does one go about evaluating a charity they may have some interest in giving to. Are there tools they can use to figure out things like how much of their donation actually goes to help the cause that’s important to them versus overhead?

Rebecca: Sure. There certainly are. There are a number of tools out there that individuals can use in order to evaluate organizations. One thing we always recommend is, if you’re looking to build a committed relationship with an organization over time, get to know the organization and meet the folks at the organization. Understand what their goals are and how they plan on achieving their goals. That relationship does need to be supplemented with looking at some numbers and looking at some public documents the charity produces. All charities are required to produce a 9-90 which is their tax exemption document that shows the contributions they’ve received and how they’ve been spending the money, on salaries, overhead—all of the details about how the charity has been run over the prior year. Sometimes the 9-90s are available on the organization’s website. But, an organization like Guide Star, which can be found at guidestar.org, has a relationship with the IRS where they’re able to get the 9-90 data and present it in a fairly user-friendly forum. We use Guide Star here ourselves, in order to be able to research charities. They have a couple of different services, some which are free and others which you pay for. But even at the free level, you’re able to see the basics of the charity and whether its tactics meet some of its core numbers. It gives you enough information to, if you desire, dive deeper and ask the organization for their audited financials which they also would be required to provide. Individuals can then dig into those numbers in that way. I will say that the 9-90 can be a bit of an overwhelming document. Guide Star does have an article on their website I was looking at just recently that really breaks it down and helps you understand how to read it. Like I said, if anybody does have any of the paid services from Guide Star, they do include deeper information about the charities. Specifically, on how they’re reporting on their goals and missions so donors can get a feel for that as well.

Rob: That’s terrific. I’ll include a link to that in the show notes, for GuideStar.org.

Rebecca: We have a list of other resources on our website, too, in our resources section with different organizations, if that’s helpful?

Rob: Yes.

Rebecca: Charity Navigator comes to mind. Charity Watch is another organization that a lot of donors use in order to look into organizations.

Rob: Okay, I’ll include that as well. I’m embarrassed to admit this, but my wife and I sometimes sit down and talk about our charitable giving and who we want to give to. We have charities we give to every year but sometimes we’re not quite sure who to give to. Maybe my wife and I are just odd? Or is this something you guys have encountered in your experience?

Rebecca: Absolutely not. You and wife are in the majority of what we’re hearing from our donors. It is very interesting that donors are so thoughtful about their giving and they want to be able to make the best impact. Now, there’s so much information out there that it’s hard to know what to believe, what to follow in order to help make your decision. And there’s so much need that adds to that complexity, so it’s a conversation we’re having with our donors all the time in terms of them asking us to figure out how to give, who to give to, and how to narrow down the choices. We really start with having a conversation with our donor around defining their charitable success. We’re looking internally and reflecting on what their purpose for giving is and how they can measure different aspects of that giving. For example, somebody has a goal of giving to help eradicate poverty. So, what segment of the population are you focused on? Once you break it down by segment — with respect to how might you be able to think about and monitor your success, in giving to different organizations — that may help in the cause, so you know whether to continue to give over time. I think we recommend that our donors sit down with their families and create what we call a charitable mission statement. That helps them stay focused on what that is. It also helps them when they receive all of the solicitation material at year-end when everything looks like it’s in “great need.” It helps them stay focused on what they’re really passionate about and continue giving to that cause rather than getting distracted.

Rob: Do you guys have examples of mission statements?

Rebecca: We have a couple of examples of mission statements we provide. We have one educational piece that’s called, The Five Best Practices. That’s a very high-level piece and one example mission statement we provide in there has supporting goals. For example, it might say, “To increase educational access at my alma mater.”

Rob: Right.

Rebecca: That’s the goal the donors have put in place. Then, they have three supporting goals to help them drive that forward. One is to identify three specific scholarships to the fund. Two is to invest charitable asset to grow the portfolio while preserving the principle. And three is to donate $10,000 a year for 10 years. That would then allow this family, or this group of donors, to be able to drive towards a more philosophical goal of focusing on educational access but doing it in a very purposeful and tactical way, that can be measured.

Rob: Yeah. I’ve got that document. I’m familiar with it, so I will include a link to it in the show notes. That’s perfect.

Rebecca: Okay.

Rob: Are there any recommended search tools? For example, if someone follows that suggestion, but maybe their mission statement isn’t quite so specific in terms of who they want to give to, but they want to help — like my wife and I, for example. We tend to give to charities that help children. Of course, we already have a number of charities we give to, but maybe we want to broaden that. Are there tools that can help us find charities that support certain specific causes?

Rebecca: I know firsthand that this is something the sector is working on providing because so many individuals have been asking for more information to help them find different organizations. Like I mentioned before, I think Guide Star can be a resource in that way. I also believe Charity Navigator may provide some of those filters to help find organizations. Say, if I’m interested in education or I’m interested in clean water preservation they might show some different organizations that might match that criteria. In organizations like Vanguard Charitable, we’re also evaluating how we can make it easier for our donors to be able to find organizations that align with their philosophical giving goals better.

Rob: Okay. One idea that’s come to my mind since Vanguard, of course, is about investing, and this podcast is about personal finance and investing. I was wondering, are there charities out there that help educate people about managing their money?

Ann: There are not-profits out there. I’m trying to think. The American Association of Individual Investors, I believe, is a non-profit that has an educational component. A lot of providers like Vanguard, as you probably know, provide a lot of education on their website. I can research that and get you a list.

Rebecca: And I’d also add that your higher education institutions provide certain classes or resources that might help in that way, and they’re all considered non-profit. But I do think it’s a great question. We’ll have to take that back.

Rob: If you have a list, or can find any, that would be great. You had written a piece on the Vanguard Charitable blog about serving on a board as one way to give. When you think of giving — at least when I think of giving — I think of giving money or stock. But, there’s also giving of time. And I thought, if I could take that and combine it with a non-profit that helps educate people about managing their money, there might be something there I could do that would be a little more involved than just writing a check.

Ann: Right. My serving on a board really was more about skill-based volunteering, because there are many ways to support a non-profit. You can certainly write a check. You can volunteer as a way of getting to know others who are similarly committed to that particular non-profit and its work. But I was more interested in really playing a role in leadership, in guiding some of the problematic initiatives. And, because I had the skills, that was the way I chose to get involved.

Rob: Yeah.

Ann: Another comment I wanted to make earlier around how to go about identifying organizations that are supporting a particular passion is, we encourage folks to (within their own network) rely on individuals who are similarly passionate and to learn from them. Giving circles would be a great be a great example of that.

Rob: You stole my next question. Why don’t you tell us about giving circles?

Rebecca: Giving circles are groups of individuals who come together around a particular cause or passion. It could be how they invest together to support a particular initiative. If, as an individual, I was looking to become better educated in a particular area, had done my own independent research but then wanted to take it a step further and learn from others who were similarly committed, and who had been following a particular initiative, giving circles are a great way of relying on your network to better define work on your mission with focus.

Rob: Can giving circles open a donor-advised fund?

Rebecca: An institution could establish a donor-advised fund much like an individual would. But, it would be the institution or the organization itself that would do that and not 15 individuals or similar group coming together for a common purpose.

Rob: Yeah. Well, in terms of our donor-advised fund, of course, my wife and I contribute to it each year. But, in theory, could some other third party contribute to our donor-advised fund?

Rebecca: Yes. In practice, individuals could contribute to your fund.

Rob: Okay. And they would get the tax deduction?

Rebecca: That’s right. That’s correct. Exactly.

Rob: I mean, I’m not looking to do that but I could imagine a group of people wanting to do that if they all shared a similar passion for a particular cause.

Rebecca: That’s right, exactly. And this is a little bit of a different take on that, but we see that with families also getting together. We may see an individual who sets up the account but then adds to their account so they can also involve their children in their giving. Then they come together around the holiday time to make some collective decisions on giving based on some passions they have.

Rob: Listen. I so appreciate your time today. I have one last question and it’s kind of a general question. For those of us that might not fall into the ultra-high net worth category, how do you give any guidance to folks on how they should incorporate their giving into their overall financial picture? Because, you’re trying to save for a home, you’re trying to save for retirement, or trying to get out of debt. Obviously, it’s a very personal question and there’s no one right way to go about this, but I’m curious if your work at Vanguard Charitable ever covers how to integrate giving into an overall financial plan?

Rebecca: What I can say is that we are very purposeful in having conversations with a lot of donors, not just at the ultra- high network level, around creating a discipline for your giving taking into consideration your financial situation and various obligations — how you can work that into your budget for charitable giving and stay pretty disciplined to that. Then, evaluating that over time when you’re not in the house-buying year. Or you’re not paying for college. It’s showing you how you might be able to flex that budget to be able to provide more towards allocating to charitable giving. But I think the discipline of always having it as a component in your financial plan helps you not only meet your short-term goals but also your longer-term goals, no matter what level status you’re at.

Rob: Right. That’s great. Is there anything I should have asked you guys that I didn’t? I think we’ve covered about everything, but—

Rebecca: One question we’re getting a lot from donors, as well as charities, is when the best time to be giving to charitable organizations is. We have been working with a lot of charities who have said that receiving grants throughout the year — rather than on December 29th, 30th or 31st — helps these charitable organizations derive their own budgets from their own goals going forward, rather than receiving it all at the end of the year in one lump sum and figuring out how they need to allocate it throughout the year. So, that’s the one piece of guidance I would ask all clients of ours to be thinking about: how you can extend your commitment from just giving at the year’s end to giving throughout the year.

Rob: That’s a good point. My wife and I had an experience last year where we made a gift in the summer. After we made the gift, we were talking to the organization and they told us the summer months were the hardest for them because people don’t think about giving in the summer. They think about that at year-end. And it’s certainly understandable because of the tax consequences. You kind of want to know where you are at. That’s one of the advantages of a donor-advised fund though. You may contribute to the fund at year-end but in terms of making recommendations, there’s no one month that’s better than another so it doesn’t really matter, although, for some reason, my wife and I got into the habit of always making the recommendations in December which really makes no sense. So, last year we changed that and it did help one of the charities we support get by through the lean summer months.

Rebecca: That’s wonderful. That’s a perfect example of spreading out your giving and using a donor-advised fund to be able to separate the tax benefit from making your giving decisions and not needing to have both of them tied.

Rob: Right, right. Well, listen. Ann and Rebecca, I really appreciate your time. Please do think about non-profits that help educate people about personal finance and investing, and if you come up with any, I’d love to hear about them.

Rebecca: Yes. I’m sure we’ll be back to you with what we can find about that.

Rob: But, if you don’t find any, then maybe we need to figure out a way to start one. But, that’s another conversation.

Rebecca: I love it.

Rob: Great. Thanks so much.

Rebecca: Thank you, Rob, very much.

Topics: Personal Finance

The post How to Make Giving Part of Your Financial Plan With Vanguard Charitable appeared first on The Dough Roller.



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