Charity vs philanthropy: Discussing the best structures for the most effective giving

KPMG family office and private client team partner Jo Bateson talks about the philanthropic structures needed to support ad-hoc giving alongside longer-term goals.

Many of us will make regular and often sizable charitable donations supporting causes that are close to our hearts. It is part of what makes us human. But when does charity become philanthropy? The distinction is not always clear.

Charitable giving is often an emotional response to a cause that tugs at the heartstrings. In the first six months of 2020, the UK population gave more than $7.3 billion [1] to registered charities. In the US, more than $471 billion [2] was donated. The generosity of ordinary people is remarkable.

A sizable chunk of this giving, and giving around the world, will have been made by philanthropic organizations and philanthropists. Philanthropy and charitable giving are on the same spectrum, but there are subtle yet key differences.

One of those distinctions sits with the individual’s motivations.

KPMG’s white paper on disruptive philanthropists suggests that philanthropists naturally embrace charitable giving but do so in a structured and targeted way. Philanthropists often say they consider their giving to be a ‘Social investment’ where a tangible ‘Social return’ is expected. Where does the shift from charity to philanthropy start?

"Philanthropy and charitable giving are on the same
spectrum,but there are subtle yet key differences."

The decision to adopt a more strategic approach to charitable giving is often triggered by a significant liquidity event; for example, an inheritance or the sale of a business.

While an individual may feel a sense of urgency to do something with that wealth, whether wanting to make a lasting difference to causes supported over many years or to aggregate giving, the need to pause and reflect is important. The major issues facing the world today have been created over decades, if not generations, and seem unlikely to abate or disappear anytime soon.

In the report, philanthropists explain how they turn to other philanthropists, visit projects, and adopt the same rigour focusing on philanthropic activity as they did on their corporate roles – sometimes taking 12 or 24 months before deciding on a course of action is not uncommon.

Philanthropists are generous with their time and are often only too happy to help individuals starting their philanthropic journeys explore and find answers to these points.

"Philanthropists should ask themselves where
they sit on the spectrum of involvement."

A key consideration for individuals starting their philanthropic journey is structure. It is not uncommon for individuals to assume that a family foundation is the right and best approach to philanthropic activity. Foundations can be expensive to run, demand time, and can constrain activity with too rigid a focus.

Alternative structures, such as donor-advised funds, social enterprises, family councils and straightforward charitable giving, can often provide philanthropists with a less rigid but equally impactful philanthropic wrapper. Time-poor philanthropists may well find, for example, that donor-advised funds are a perfectly suitable approach if simply donating cash to charities is a priority. Charities are almost always willing to involve significant donors in how money is used if greater involvement is desired.

Foundations may well be a more appropriate solution if a philanthropist wishes to create and manage a particular program or project over many years, or wants to involve family members. KPMG’s white paper explores ways to involve the next generation in considerable detail, both in highly structured and more informal ways.

Whether you give via charitable donations or structured philanthropic structures, there is no right or wrong approach. Flexibility will be needed, both to allow new generations to explore causes that are personal to them and reflect the changing landscape. It is an ongoing and evolving discussion.

1 UK Giving 2020 | Largest charity giving study in the UK | CAF (cafonline.org) | https://www.cafonline.org/about-us/publications/2020-publications/uk-giving-2020

2 Giving USA 2021: In a year of unprecedented events and challenges, charitable giving reached a record $471.44 billion in 2020 | Philanthropy Network Greater Philadelphia | https://philanthropynetwork.org/news/giving-usa-2021-year-unprecedented-events-and-challenges-charitable-giving-reached-record-47144