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Something’s Gotta Give: Getting Good At Giving

When it comes to giving money away, the only hard part for your clients should be accumulating the wealth in the first place.

When it comes to giving money away, the only hard part for your clients should be accumulating the wealth in the first place. But although the real and intangible benefits of your clients' charitable acts can be much too many, it takes a little work to make sure that the money goes to the right people for the right reasons.

Here are a few questions your benevolent clients should ask prospective charities, so that their good intentions don't lead to a bad outcome.

  1. Who Are You?

    The first step a potential donor should take is to verify that the charity is indeed the one that she perceives it to be. That's because — intentional or not — many different organizations adopt similar names. Your clients should also double-check to see if their donation checks are tax-deductible. Even though a charity may highlight its “tax-exempt” status, that term just means that the group doesn't pay taxes.

    If your client wants to be able to deduct donations, she needs to give to a qualified 501(c)(3) organization. Most of these are named in the IRS Publication 78, which is searchable online at (Note that although many religious organizations might not be listed in Publication 78, donations to these groups are still likely to be tax-deductible.)

    A seemingly trivial, but very important distinction is the IRS classification of the charity's tax status. Generally, donations to groups organized under Section 501(c)(3) are tax-deductible. However, money given by your clients to 501(c)(4) groups may not provide any tax break.

  2. What Do You Do?

    Section 501(c)(4) non-profits are called “social welfare” organizations by the IRS, and are allowed to champion legislation that may benefit a particular cause (a prominent example is the National Rifle Association).

    But 501(c)(3) groups are coming under increasing scrutiny for any political activities that could cause the loss of ability to provide tax breaks to donors. Clients should ensure that a charity is aware of the limits on its advocacy activities, and has written policies in place to prevent crossing the line.

  3. Where Are You?

    Clients may also be driven to give to organizations that aid the victims of natural disasters overseas, but watch out. Many scammers and spammers use the latest headlined catastrophe to solicit contributions, which never make it to the intended destination.

    If your clients fall prey to these predators, they could not only be out the “donated” money, but their credit card information could fall into the hands of someone who shouldn't have it. Instead, use a trusted, domestic charity (a la the Red Cross) to funnel financial aid to the deserving recipients abroad. Using a U.S.-based organization is also more likely to provide tax-deductibility of donations, as opposed to one based outside America.

  4. Where's The Money Going?

    Even when your clients have verified that they are donating to the intended, qualified organization, they may want to see what will happen to the money after the check gets cashed.

    It's certainly fair for the client to inquire not only how the donation will be spent, but also what the specific goals of the program are, and how progress toward those objectives will be measured and reported. After the use of the donation is established, it's appropriate to take a step back and see if the organization is operating as efficiently as possible.

    Most non-profits spend their money in three distinct areas: overhead (like salaries and administrative expenses), fundraising activities and the projects that fit the group's ostensible mission. In a perfect world, all donations would go to the latter category. But the first two types of outgo are certainly necessary — to a point.

    According to Charity Navigator, most charities should be spending at least two-thirds of their annual budget on programs and services. The median portion of the budget that goes to administrative expenses is around 10 percent, and the median portion for fundraising is about 7.4 percent.

    Much of this information is available on the organization's IRS Form 990, which most charities are required to file. Although you and your client can certainly analyze the raw figures yourselves, other parties are also willing to perform the task (see below).

    Keep in mind that different ratios should apply to different types of organizations. For instance, a soup kitchen should have much lower overhead and management expenses than what a hospital would show.

  5. How Do You Keep Your Powder Dry?

    Finally, savvy donors will also ask to see what happens to money that isn't immediately spent by the charity, by reviewing the charity's publicly available investment account information.

Offering to assist your client in evaluating the charity's investment strategy and allocation can be mutually beneficial. You can ensure that his unspent dollars won't be fritted away by unsound financial management strategies.

If you do see that the charity is getting misguided investment advice, or none at all, you can offer to provide your services to the group.

Outsourcing The Evaluations

Thankfully, it's not mandatory that you and your clients spend days poring over budget sheets and board meeting minutes to determine if a prospective charity meets a client's criteria. Several independent companies have aggregated information on charitable groups, and even offer various online tools to help donors analyze an organization's finances and activities. The more prominent ones include Guidestar (, the American Institute of Philanthropy ( and the Better Business Bureau's Wise Giving Alliance (

But the premier source of information on both general charitable activities and specific organizations is still Charity Navigator ( Charity Navigator provides quick snapshots and ratings of various charities for free to anyone, and registered users can compare several charities at once, share comments with other users and view up to three years of an organization's historical numbers.

Oh, and one more thing available at Charity Navigator that should be of interest to your clients: each charity's Donor Privacy Policy. Over the next few months you'll learn the benefits clients can gain by prominently attaching their names to their gifts, as well as when it makes good sense to make donations anonymously.


According to Charity Navigator, the median cost for a charity to raise a dollar is about 10 cents. Using that criterion, here are the organizations that spend almost as much as (or more than) they get in donations for every dollar spent on fundraising activities.

Writer's BIO:

Kevin McKinley
CFP© is Principal/Owner of McKinley Money LLC, an independent registered investment advisor. He is also the author of the book Make Your Kid A Millionaire (Simon & Schuster), and provides speaking and consulting services on family financial planning topics. Find out more at

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