The Future of Equitable Giving: Understanding and Implementing Trust-Based Philanthropy

Amid global shifts due to the COVID-19 pandemic and a nationwide reckoning around social justice, philanthropy has taken a new shape. More donors are exploring trust-based philanthropy, a charitable approach that aims to make giving more democratic, inclusive and collaborative between funders and grantees. This approach aims to address the systemic issues associated with traditional institutional giving, and many nonprofit leaders are hopeful that it represents the next era of philanthropy.

Many foundations agree with the principles of trust-based philanthropy, but there is still confusion about how such principles should be implemented. Since trust-based philanthropy asks its participants to move away from the processes they are familiar with, it can be challenging for funders to put it into action.

What do foundations need to do to implement trust-based philanthropy? It is helpful to first understand what it is and what it is not.

Trust-based philanthropy’s roots

Trust-based philanthropy aims to shift power from funders, who have traditionally had outsized control over the grantmaking process and the allocation of funding, to nonprofits that intimately understand the needs of the communities in which they work. Rather than a checklist of must-do items, trust-based philanthropy aims to embody a set of values, and the ways it manifests may look slightly different from one foundation to another. The Trust-Based Philanthropy Project cites a few hallmarks of this structure for giving:

Unrestricted, multi-year funding.
Simplified application processes and reporting requirements.
Transparency and communication between funders and grantees.
Donors who are actively engaged in the organizations they support beyond writing a check.

An approach that reduces the administrative burden on grantees makes it easier for funding to flow to small, grassroots organizations that are frequently overlooked by major foundations. By giving these organizations — many of which are led by women and people of color — more power in the relationship and more latitude to use funds in the way they see fit, trust-based philanthropy has the potential to eradicate the inequality that has historically been baked into traditional giving.

Trust-based philanthropy became necessary during the pandemic as community needs grew and changed rapidly. Donors realized laborious reporting could present roadblocks to some types of giving, and grantees had a better understanding of what was happening on the ground in real time. For many funders, this approach has stuck. In fact, a report from PEAK Grantmaking and Exponent Philanthropy found that many respondents to a survey of the two organizations’ members were likely to continue using the simplified application and reporting processes they adopted during the pandemic.

Perhaps the best and most public example of trust-based philanthropy is MacKenzie Scott’s giving initiative. She has quietly donated $8 billion in unrestricted funds to hundreds of small charities without so much as requiring a grant application. This initiative is proof that there are upsides to looking outside the box of traditional reporting and restrictions. When foundations trust grantees to be the stewards of their funds, those funds can be put to use quickly and impactfully.

Implementing trust-based philanthropy successfully

The benefits of trust-based philanthropy are clear, but it can be a significant paradigm shift for funders that usually rely on restricted funding and meticulous reporting on outcomes. Changing processes and getting buy-in from decision-makers can be a challenge. It requires funders to take a leap of faith that may feel uncomfortable at first.

However, trust-based philanthropy doesn’t mean throwing caution to the wind. Financial procedures and policies are still necessary (and perhaps even more important). Plus, because trust-based philanthropy is a set of values rather than a firm set of rules, funders don’t need to overhaul everything they do to begin shifting toward a more trust-based approach.

For donors who want to explore trust-based philanthropy, here are some tips for success:

Focus on due diligence. Successful trust-based philanthropy relies on rigorous due diligence, which allows for the trust necessary for unrestricted funding. Before granting funds, donors should thoroughly understand the potential grantee’s leadership, governance structure, programs and community impact. When reviewing a financial statement, funders should take a close look at the organization’s overall business model, how the organization is sustaining its work, whether there are any deficits or surpluses and who else is in its funding portfolio. Lastly, donors should understand how their grant might help the organization.

Prepare for multi-year funding. Foundations that aren’t used to offering multi-year grants need to protect their own financial viability. Before committing to a grantee, funders should first take stock of all current and future grant commitments and decide if multi-year funding is feasible. Budgeting, cash flow and minimum distributions required by tax regulations should all be closely monitored.

Develop new policies and procedures. Shifting to trust-based philanthropy means updating and creating new policies, procedures and internal controls for grant agreements. Before delving in, funders must review the policies they have in place and determine how they might need to change to support a trust-based approach.

Work with an auditor. It is not within the scope of a foundation’s annual audit for its auditor to evaluate the foundation’s grantees or the effectiveness of its grants. But the auditor will review grant agreements and grantmaking processes to ensure that foundations are following their internal procedures related to authorizing and recording grants. An auditor can also review grant documentation and ensure that the language in an agreement is consistent with the donor’s intentions.

Maintain trust with stakeholders. This form of giving requires trust among all parties, including stakeholders beyond funders and grantees. Foundations that adopt trust-based philanthropy must keep their board, legal advisors, auditors, tax practitioners and other stakeholders in the loop. The more people familiar with and committed to trust-based philanthropy, the more likely that it can be sustained for the long term.

Trust-based philanthropy is not a one-time deal, but an ongoing process that takes consistent work, communication and feedback. By taking these steps, funders can move toward a more inclusive way of giving that benefits them, nonprofit organizations and the communities they support.

Stephanie Yan, CPA, is the Private Foundation Practice Leader at GHJ with more than 20 years of public accounting experience providing audit, accounting and general business consulting services for private foundations and other industries.

Amber Coatney, CPA, is a Manager at GHJ providing accounting and auditing services to nonprofit clients.

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