Giving back wisely

With the holidays upon us and tax-season looming, you’re probably considering which charities will top your yearly donation list. 

I have posted before about cashless alternatives to philanthropy. (I love those kitten blankets!) But unrestricted cash donations are also mutually beneficial gifts; cash is desperately needed by nonprofit organizations, because it allows those who run the organization to direct the funds where they are most needed. 

There are some terrific vehicles out there for giving beyond straight donations.  Here are the most popular:

Stocks/securities: You can transfer stocks or securities to the organization.  Thanks to changes to tax laws in 2006, the charity pays ZERO capital gains and you get a tax-receipt for the full-amount of the gift!  

Residual bequests: A residual bequest is another excellent option for those who are living on a fixed income or tight budget. Even if you do not have much cash, you may have assets which have some value, such as your home. Through a residual bequest, (a percentage in your will) you can guarantee that you will look after your loved ones AND make a difference.  For example, you can request that the remaining 10% of funds in your will, after your family has been given their share, be distributed to your favourite charity.  You’re simultaneously alleviating some of the tax burden on your loved ones by reducing or even eliminating the capital gains they will have to pay.

Charitable giving helps you to reduce the tax you pay at the end of the year, but that’s not usually why most people give.  Instead, making a donation is about feeling good about giving back, knowing that you’re making a difference in the world and contributing to a better future.  It’s an investment in a better world. 

Most donors are concerned about administrative and fundraising costs.  And when you’re on a tight budget, with little to spare, you want to make sure that your money is going to the right place. Here are some questions to ask when comparing charities:

1. “Can I see your financial pie?” – ask to see how the funds are distributed but don’t stop there – many charities hide administrative and fundraising costs under misleading categories.

2. “What are all the costs included under each section of this pie?” In particular, “which staff salaries are listed under administration and fundraising and which are not?” At the very least, the Executive Director and staff directly involved in fundraising will be named as a fundraising cost.  Others, like those in communications, may not be. 

3.“What activities does the organization included under fundraising?” Make sure your values align with their spending.

“What is the return on your investment on each of your fundraising expenses (like direct mail and special events) and what portion of your fundraising budget is spent on each of these activities?” – This will show you what portion of your funds are spent on heavy income generating activities and what portion are spent on less fruitful ones.  This will help you identify their efficiency.  

Note: A good charity should not have admin/fundraising costs higher than around 35%.  

These questions are not to intimidate you or to suggest that most charities are mismanaged, rather it is to empower you to seek out and reach out to those nonprofits you really trust.  By investing in a charity you truly believe in, you will end up with more than a tax-receipt – you will have faith that your money is truly making a difference.