Once you have determined that you want to be giving more – maybe even sacrificially giving – the next natural question has to do with where the money should be given. Though you may have some ideas, it takes time to develop a holistic strategy. My wife Kathy and I found ourselves in that position some years ago. We had funds we knew we wanted to give, but we weren’t sure yet where or how. We wanted time to prayerfully and mindfully decide where God wanted us to steward those dollars.
REASONS WE STARTED A FOUNDATION
Kathy and I decided to start a foundation after a tremendously successful year in business. I was analyzing our profits that November and based on the formula I had set up, (read Generosity Blog Part 2 to learn more about using a formula), I realized there was a large sum of money we were committed to giving away, but no solid plan about where to give. We didn’t feel that God was leading us to simply give this additional amount to the ministries we were already supporting.
Kathy and I believe that you pay Caesar what he’s due (in taxes), but not a dime more. We wanted to be intentional, but we wanted more time. A friend suggested we start a foundation – that way, we could give the full amount to the foundation and receive the full tax deduction for it without having to immediately decide where the money would ultimately be given.
You can read more reasons why starting a foundation was the right route for our family by clicking this handout titled Reasons Paul and Kathy Started a Foundation. For us, it has been a marvelous place to “park” God’s money.
DONOR-ADVISED FUNDS
Finding a place to park money while you research where best to give is important. A foundation will not be the ideal solution for all individuals and families. Foundations also aren’t as necessary today, as donor-advised funds are readily available, easier to operate and more cost-effective. The realistic minimum to start a foundation is $5 million, otherwise the expense of starting and managing it isn’t justified.
An alternative money “parking” place is a donor-advised fund. A donor-advised fund is a public charity; however, you do not own the account. You make a gift to the fund and instantly receive a tax deduction. The money then stays in the account until you, as the donor, direct it somewhere. You are in reasonable control; the fund just administrates the process for a small fee, (which is a lot lower than the expenses you would pay with a private foundation).
The money you put in a donor-advised fund is invested and growing while it waits for your direction. I share more considerations in the Handout Foundations vs. Donor-Advised Funds.
THE DIFFERENCE BETWEEN A 501(C)3 AND A PRIVATE FOUNDATION
A 501(c)3 is a public charity. They are a non-profit business, and there is no requirement for how much they need to give away. They have an independent board, function as a charity, and follow certain rules.
A private foundation follows a different tax code – it is classified as a corporation that gives a minimum of 5% yearly to 501(c)3 charities. Foundations can invest assets which generally grow tax-free. Because of this, the money continues to grow while you do your due diligence in determining where to gift it. Following the requirements for private foundations is crucial because the penalties are significant.
WHEN TO GIVE
Our rule of thumb? As soon as possible. While many foundations hang on to wealth and only distribute the required 5%, we have always been on track to give it away as quickly as possible.
There are several reasons we’ve chosen this route:
OUR RESPONSIBILITY IS NOW
If Christ comes back today, we don’t want to have a lot of funds tied up in our foundation. We want to make sure that the money is given to further God’s Kingdom as quickly as possible so that it can make a difference in the here and now. I have shared more in the handout Reasons to Consider Giving Earlier, Rather Than Later in Life
COMPOUND RETURNS
We also believe that the principle of compound returns applies to giving. Most of us understand this concept – you invest a dollar and earn a return, which compounds over time and grows to something significant. Many people might use this as a reason to keep the funds in the foundation – they can grow, and a larger sum can be given away later. We believe the kingdom operates in compound returns also – if a life is changed today because of a gift we make, the impact that individual will have for the balance of their life will be exponential, far more than the invested return would have provided.
FAMILY INVOLVEMENT
We have prioritized significantly involving our children in our foundation’s giving since the beginning. When they were younger, they didn’t know the amount that was being given, but they knew where the funds were going and to what purpose. We believe in leaving a legacy of giving, rather than leaving large sums in inheritance or a large sum in the foundation. We don’t envision Servant’s Heart sticking around for 30 years after we pass to distribute the funds. We have what we need, we give away the rest, and we hope that our children will develop their own giving accounts and donor-advised funds.
TAXES
I’d like to provide a reminder here about taxes. It is so important to give money in the year that it was earned to preserve the dollar’s value instead of diminishing it after taxes.
GIVE WHERE YOUR HEART LEADS
How do you determine which ministries to support? We have prayerfully weighed many factors over the years in choosing organizations to partner with. We have found the following points beneficial:
- Look for ministries or charities where the cause touches you personally in some way. When the cause has been near and dear to our hearts, we have found we experience more joy in our giving.
- Consider whether you feel a stronger sense to support ministries in your community, state, throughout the U.S. or the world. As I’ve mentioned before, giving is a journey. You can expand and diversify your giving over time but choosing somewhere to start is the first step.
- Start with who you know. Often people give to a cause because of an existing relationship they have with someone connected to the ministry or charity. This is a great place to start. As your giving continues, be sure to look closely at the results the ministry is achieving.
In the handout How Foundations Think About Grant Making I share more thoughts on areas we focus on as Servant’s Heart Foundation when determining whether to give to a ministry/ organization. Take a moment to read through it.
One thing I know for sure, it doesn’t seem prudent to have a large amount of money in the bank and significant possessions on the day our Lord Jesus Christ returns. Considering we have no idea when this will be, a prudent strategy would be to invest our excess assets into His Kingdom now before He returns. After all, we are blessed to be a blessing!
Over the years, Kathy and I have received many requests from friends and mentees to share information about the ministries Servant’s Heart foundation supports. It has been important to us to choose organizations that we see being efficient and effective stewards of the resources they have been entrusted with. It has been our honor to work closely with each ministry’s leadership and witness firsthand the great Kingdom impact they are having. We are glad to share these organizations with you on our Servant’s Heart blog, found at https://www.servantsheartblog.org/
ACTION STEPS
- Do some additional research on private foundations and donor-advised funds and determine if one of these routes might be right for your family.
- Have you fully vetted the ministries you’re currently supporting? Consider taking some time to evaluate whether the organizations you have chosen are using the most of your dollar to care for direct needs.
- Consult with God through prayer and with your spouse to determine what changes you’d like to make to your current giving plan.
This post is the third in a four-part series on generosity. The previous posts detailed the “why” and “how” of embarking on a giving journey. In the final post I share on how to identify a giving focus.
