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The Patient Donor: Embrace a Long-Term View

In a market environment that tempts panic, a recent study reminds us that many foundations are here for something bigger.

Market and economic headwinds created a challenging environment for donors to maintain and deepen their philanthropy in 2022. Despite these challenges, donors remained committed to their grantmaking activities and some even expanded their generosity, according to new research from Foundation Source.

Among more than 200 private foundations, 74% maintained their grantmaking last year, and, of those who made changes, 46% increased the number of grants, 39% increased the size of grants and 24% increased the number of grantees supported. Furthermore, foundations feel optimistic about building on this progress in 2023. Fifty-eight percent of donors say they will continue to implement their long-term strategy, and 43% plan to add to their endowment this year.

This “stay-the-course” mindset is indicative of the discipline that foundations hone to continue driving positive impact even during tough times. Rather than reacting to short-term dynamics, foundations are committed to building a philanthropic giving strategy that looks at the bigger picture and paces for a lifetime—in many cases, several lifetimes—of giving.

It’s a type of patience that many of us could look to when it comes to making consequential decisions about our portfolio management. But patience is not the only notable characteristic of a resilient private foundation. There are other areas where donors are focusing their efforts to build a long-lasting and well-rounded legacy.

Family legacy

One of the most popular reasons people start a private foundation is the opportunity to build a family legacy. A foundation can help bring families together through an identity shaped by shared values and goals, which can be especially difficult when family members feel distanced by generational differences. For example, social media plays a much bigger role in shaping younger generations’ interests and perspectives compared with older generations, who did not have these outside influences so prevalent in their lives when they were younger. Donors see the value in the structure that private foundations offer for families to pass their core values to the next generation.

This idea of prioritizing family legacy also comes through in our research with 42% of foundations indicating that managing succession is a top area of concern. When older members involve their children and grandchildren in foundation activities, it can make them feel more connected to the family and the foundation’s mission, and inspire them to continue building a legacy of meaningful generosity and impact. Foundations’ desire to learn more about how to effectively engage the next generation of leadership is a telling example of their long-term mentality.

Creative license

Our research also shows that 30% of donors are interested in leveraging more of the unique features of their foundations to drive change. These approaches can make giving feel more personal and gratifying for donors. Their desire to go beyond the simple transfer of funds speaks to their motivation for pursuing private philanthropy: to play a role in creating a better world. It’s the type of mission that requires long-term commitment—not a quick fix.

The IRS allows private foundations the versatility to get creative with their giving. For example, donors can engage in prize-based philanthropy, which inspires individuals and nonprofits to develop innovations or solve problems for the chance to win an award, such as funding and connections to organizations that can help them further their work.

Foundations also can engage in philanthropy through unique channels such as granting to individuals, conducting direct charitable activities. Donors may want to leverage the ability to make grants directly to individuals during crises, such as the fatal earthquakes in Turkey, devastating floods in California and conflict in Ukraine, to provide immediate relief during an emergency. They can also carry out their own projects, which can be as varied as running a museum, holding a winter coat drive or operating a basketball training camp for kids.

Mission-related investments are another tool that can be especially attractive to active investors and their advisors as it allows them to direct their charitable assets to for-profit ventures that align with their mission. In these cases, any ROI can be returned to the foundation and be regranted.

It’s early in the year, but foundations have made it clear that they are ready to endure any challenges that come their way. As you have discussions with clients this year, don’t forget to ask about their charitable giving. When you coordinate philanthropy with other areas of clients’ wealth management plan, you can optimize financial outcomes and help them make an even greater impact.

Hannah Shaw Grove is chief marketing officer at Foundation Source, the nation’s largest provider of foundation management services.

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