Episode 3 – How Strategic Philanthropy Helps Wealthy Families Thrive

On episode 3 of the Our Family Office podcast, host Adam Fisch sits down with fellow Client Advisor Connor Kelly to discuss philanthropy. Adam and Connor walk through the “capital pyramid” and what it means to engage in strategic philanthropy (maximizing personal impact, charitable impact, and tax efficiency). They also discuss the benefits for families in establishing family foundations, and the ways in which a foundation can pass on family values and build connection across generations.

For more information about Our Family Office, visit ourfamilyoffice.ca or reach out at [e-mail]. 

Disclosure: This podcast contains opinions and does not constitute the provision of investment, legal or tax advice to any person.

What is The Our Family Office Podcast?

Our Family Office is proud to announce the launch of the Our Family Office Podcast. Throughout the course of the inaugural season, host Adam Fisch speaks to various guests from across our firm, offering insights into the areas of focus for an integrated family office, and the ways that a Shared Family Office™ can help Canada’s wealthiest families.

Adam Fisch: 00:08

Welcome back to the Our Family Podcast. I'm your host, Adam Fisch, and today, the topic is philanthropy. I'm joined by Connor Kelly, a client adviser at our family office. Connor, thanks for being here.

Connor Kelly: 00:21

Thanks for having me. I'm excited to talk about philanthropy on the podcast.

Adam Fisch: 00:24

So this is something that is really important to Our Family Office and to many of our clients. So to start with, let's talk about how we, as a firm, think about philanthropy, and it's really in the context of the capital pyramid. Walk us through it.

Connor Kelly: 00:42

Absolutely. So the capital pyramid is a way we think about, all of our clients' funds, and they can roughly be put into 3 different buckets. The financial independence capital, that's the very bottom layer of the pyramid.

Adam Fisch: 00:55

That's the first- let's talk about what that is. So that is kind of family wants to- Most important is family sustains their lifestyle. They can continue living their life how they've lived throughout the course of their lives. Make sure, basically, you don't run out of money.

Adam Fisch: 01:12

You don't have to change your life throughout, you know, however long hopefully, a long and healthy life.

Connor Kelly: 01:18

That's right. So you can think of the the financial independence capital as, like, your Maslow's kind of funds. It addresses all your life needs. So the goal, obviously, for everybody is to have those addressed. And then once we've satisfied all of our, you know, physical life needs and things like that, we move to a higher level, and that would be the legacy capital. The way we think about legacy capital is any money that you're not gonna spend in your lifetime on yourself, You could leave that to your heirs. That's gonna be kids, grandkids, nieces, nephews, etcetera.

Adam Fisch: 01:46

And that's, you know, that's a conversation or a lot of conversations that we have with clients around, you know, what do you wanna leave. Right? Clients that are fortunate to have kind of the choice of how much do they wanna leave to the next generation, and that goes back to, right, individual situations, family relationships, dynamics, and and we work with our client families on getting the next generation educated, prepared to be, you know, responsible stewards of those funds so that whatever they decide to leave behind, it's gonna be looked after . You know, it's not gonna it's gonna make their lives easier rather than harder. It's gonna make things better for them.

Adam Fisch: 02:25

That's really what our work is, is really focused on. And then, of course, the next level. Right? Once your needs are met, once the next generation's needs are met to your satisfaction, then we have, right, social capital.

Connor Kelly: 02:39

That's right. In social capital, the way we think about this is, again, you know, we've talked about your lifestyle needs, giving to your kids, then what's left is you're gonna give money back to society. Typically, the way we, you know, as citizens interact with this is you pay taxes to the government. The government then decides where those, funds should go, to benefit society. Sometimes you agree with it. Sometimes you don't. The beautiful thing about social capital and doing strategic philanthropy is we get to, help the clients direct those funds to causes that are more impactful and more meaningful to them. And so this still benefits society, but it has a more personal, impact on the client.

Adam Fisch: 03:21

Yeah. So let's expand on the term strategic philanthropy because you know, giving, you think about as philanthropy, but strategic philanthropy is something that we spend a lot of time on. And that's a term that someone you know, a listener might not be familiar with, might not really understand. Well, what does it mean to be strategic about philanthropy? So I think we really think about it in 3 ways.

Adam Fisch: 03:47

One is giving that is impactful, that is that is meaningful to the client. Right? That's a personal thing. We help clients figure out what that'll mean, but it's how do you give in a way that's meaningful rather than just, okay, you're giving when asked, and that's just kind of it. The the next is sustainable giving.

Adam Fisch: 04:07

Right? You can give in a way that is gonna last for generations. That could be kind of in a foundation, that sort of thing. And then the last is giving in a tax efficient way. So how do you give in ways that are going to maximize the gift and, you know, it may even allow you to give more.

Adam Fisch: 04:25

So if we think about those three areas, let's start with intentional giving. So talk about what we think about how we help clients, give in an intentional way.

Connor Kelly: 04:40

Yeah. And I'm gonna draw on a a specific client example and and walk you through a bit of a story. So I had a client approach me a number of years ago, just about this topic about philanthropy, and she was, a little bit upset because we were doing her the taxes at the end of the year, and she realized she had, you know, over a 100 different donations to various charities. And that just naturally sort of arose through, you know, various dinners you go to, door to door, solicitors. You know, things just pile up.

Connor Kelly: 05:08

There's a $30 draw on the credit card every month I don't look at.

Adam Fisch: 05:11

And and for wealthy families, you know, that is very common. You start giving. You end up on mailing lists. And then those those requests come in, and they really they never stop, which is, you know, you understand it, but it can be overwhelming. It can be, you know, just a lot of, mental stress just to think about where am I giving, that kind of thing.

Connor Kelly: 05:31

That's right. And one of the issues the client came to me with was, she felt that there's a lack of, of control. And, you know, when you're when you're unsure about something and it's just sitting there in the back of your head, it really eats into your kind of mental free space. So what we ended up doing with the client is we took a look at all of the donations that she made, throughout that year, and we bucketed bucketed them into broad categories. Examples being, you know, health, outreach, animals, environment, education, things like that.

Connor Kelly: 06:01

And what we did and what we found after that analysis was she was giving to a broad range of different buckets, and it turns out it's not necessarily the buckets that she had, wanted to give to or things that she felt were, personal to her. And so after realizing that, we developed what was called a strategic allocation. And so in the investment world, we're all familiar with an investment allocation or an investment policy statement or IPS. And so what we ended up doing is creating something similar, called the strategic, philanthropic allocation. So coming back to those buckets of outreach, health, animals, etcetera, you decide what percentage of your giving throughout the year you want to go to each different bucket.

Connor Kelly: 06:44

And by doing this, we're a little bit more focused. The goal for this specific client was to reduce the, you know, what I would call the, administrative nightmare and the headache of all these different donations and really focus that down, pair the amount of donations down, and make them a lot more, impactful. So we started identifying, you know, the end of the final allocation for this client ended up being 70% health, 20% outreach, and 10% animals. Now that's not a hard and fast rule. Obviously, things come up and, you know, you can give, to whom whomever you want if the situation arises. But that's generally what we're aiming for and what we aim for throughout that year.

Adam Fisch: 07:25

So it's the idea of, you know, if you go and look back and say, well, I gave, let's say, $50,000 to various health related charities, but I gave it to 20 different charities because I asked. And instead, you're saying, well, I'm gonna give- I'm still gonna give $50,000 for health related charities, but I'm gonna give it to 2 or 3 in a more concentrated, in a more intentional way.

Connor Kelly: 07:50

And that's exactly what we did. So the client ended up doing a very large concentrated donation to the Cancer Research Society that year, and they ended up matching her donation, which resulted in them creating a research program, to research the cancer, that took her, late husband's life.

Adam Fisch: 08:08

And what I think is so important about that is, giving is very nice and it feels good, and there's, you know, all kinds of science that ties philanthropy to happiness and those sorts of things, which is great. But to just give kind of on an ad hoc basis is often not as meaningful because it's just kind of, okay. I wrote a check and then it you know, that money kind of disappears into the pool of whatever that charity is as opposed to if you're being really intentional about it and you go through a process of saying, alright, do I wanna give to a large national charity? Do I wanna give local? Do I wanna give to a big charity or a small one where I can, you know, point to a specific, you know, specific project that the charity did as a direct result of my donation?

Adam Fisch: 08:53

Now there's no right or wrong answers to these questions. But if you ask them and we, you know, we ask them of our clients and help go through this process, it facilitates a client giving in a way that really resonates with them personally. So the personal impact is as large as it could possibly be. And the other side of it is when you streamline this process, of course, like you said, you could always write a check when something comes up, someone knocks on the door and, you know or there's an emergency campaign, whatever.

Adam Fisch: 09:26

But by streamlining it, it also just relieves that mental load. And so much of the work that we do with our clients is about, okay. You've made it. Right? You've achieved the success. You're financially free. How do you make your life easier? How do you sleep better at night? How do you just make things simpler and have less stuff on your mind? And this speaks directly to that.

Connor Kelly: 09:49

That's right. And, one of the other pieces you you briefly touched on there was, ultimately where are these funds going to, and that's something that we help the clients with. So, you know, you've identified, hey. I wanna spend this, you know, imaginary $50,000 or donate $50,000 to health each year. But where does that end up going?

Connor Kelly: 10:07

We all know about very large multinational charities who raise a lot of money, but ultimately, you know, maybe 1 or 2¢ on every dollar raised goes to the ending program. So that's one of the things we help parse through with our clients, once we've identified areas. And they might not necessarily know where to give within that area, we can help them identify, various charities. And one of the services we use is called Charity Intelligence. It's a trusted expert in Canada just on evaluating charities from a financial and social impact lens.

Connor Kelly: 10:41

And so what we end up doing is we look up different charities and areas, and we evaluate them based on needs, funding, impact. And a lot of times, you do find these smaller, more local charities, have a greater need and ultimately, result in a more personal impact, for the client, as well.

Adam Fisch: 11:01

Yeah. So we go through this exercise where we help tease out from clients what's gonna mean most to them from a broad kind of area of giving perspective. We help present options to clients so that they're making more intentional, more meaningful decisions to them on which charities to give to. And then the next piece is about what kind of sustainable giving legacy you wanna build. Right?

Adam Fisch: 11:29

So when we talk- a number of our clients have family foundations, and we look at that as, you know, that can be a way to involve the broader family in giving. You know, whether it's private, public foundation, there's different options that we can present to clients and help them get set up with them, but we help a number of our client families with how do you involve the next generation in that giving. Right? Both to teach them kind of just good governance because it's a biz you know, a charity, a nonprofit, a foundation is a business. It's a nonprofit business, but it's a business.

Adam Fisch: 12:06

And so, right, you can have the next generation sit on the board of your foundation and attend quarterly meetings and make pitches for where it should get allocated. And then the other piece is you're then passing on those values. Right? So much of the work that we do with families and multigenerational wealth is around shared values. And involving the family at an early stage in giving, allows, you know, the older generation to pass on those values to the next.

Connor Kelly: 12:43

Yeah. I agree with that. That's one of the reasons we really love the foundations. We call it the training wheels, for the next gen. It allows you to teach them the, as you said, the financial, stewardship, without necessarily, you know, bringing them all the way into sort of the fold and, you know, telling them all about the family business. Maybe it's not appropriate to do so if they're, you know, a 6 or 7 year old, but you can still teach them money lessons through the foundation.

Adam Fisch: 13:06

And then the last piece, of course, that kind of overlays all of this is tax efficiency. How do you give in a way that is gonna maximize, the dollar impact of the charitable giving, and, you know, it's gonna reduce taxes if that's something that matters to you. Now this is from a Canadian perspective, but it is true in a number of other jurisdictions. Alright. You can just as an example, you can donate securities and, you know, it'll save you tax in 2 ways compared to just, just donating cash. So, Connor, as the CPA in this discussion, give us a brief overview of just kinda big picture how that works.

Connor Kelly: 13:52

For sure. So in, this example, we'll just say we have some Apple stock. I have one share, and it's currently worth a $100. And so if I were to do donate that today, I'd get a $100 donation tax credit in broad strokes. One of the nice things is maybe I didn't buy that Apple share for a $100. Maybe I bought it for $20, 10 or 20 years ago. And so in the normal course of business, if I were to go and sell those shares, there would be tax to pay because there's a gain. But the nice thing is with the donation, I'll get my full $100 of, donation credit, and I won't be on the hook for the whole, tax bill of that gain, that I enjoyed on my Apple shares. And so it's a way to, still donate to charity, but you can also avoid or defer some taxes depending on the strategy. So it makes it a lot more tax efficient in that way.

Adam Fisch: 14:44

And this is, in my mind, this speaks directly to what we do as a family office in terms of integration. Right? Is that we're thinking about philanthropy that's meaningful to the family. We're thinking about preparing the next generation and involving them in sharing the family's values and in making donations.

Adam Fisch: 15:06

We're thinking about the tax impact specific to a client family. Right? All of these pieces work together, and so we, as a group, are always thinking about, okay, how do these parts talk to each other, and how do we align them in a way that they're all steering in in the right direction?

Connor Kelly: 15:29

Yep. Integration. And nothing is in a silo, which is great, and we make sure that, this is a lot more impactful. You know, if you decide to give out of the social charitable bucket. We wanna make sure that that money is the most impactful, and we respect kind of the legacy you're trying to create with your family.

Adam Fisch: 15:49

Connor, thanks a lot for this discussion. This is fun. Thank you. I hope you enjoyed today's conversation.

Adam Fisch: 15:55

Thank you so much for listening. Our Family Office is Canada's 1st purpose built shared family office, and the Our Family Office podcast is produced by Henry Shew. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to like, comment, and subscribe so you don't miss an episode. See you next time. The information in this podcast is presented as a general educational and informational resource only.

Adam Fisch: 16:20

While certain participants in this podcast may be registered to provide investment advice as a representative of Our Family Office Inc, itself a registered firm in certain Canadian jurisdictions, this podcast does not provide individualized investment, financial planning, legal, tax, or insurance advice, nor is it meant as a recommendation to any listener to buy or sell any specific securities or otherwise take any other investment action. Any action you may take as a result of the information presented in this podcast is your own responsibility. Our Family Office Inc and each of its representatives that participate in any podcast disclaim that any listener should rely in any way on any of this content as investment, tax, legal, or insurance advice. Listeners are encouraged to consult with their individual investment adviser and other financial professionals prior to taking any potential investment actions or making any insurance or tax decisions.