Can the Philanthropy Consultant Help You?

Donors are more actively involved in their philanthropy today than ever before. While some people still simply write a few checks at the end of the yearduring philanthropy seasonmore and more are beginning serious philanthropic efforts at an earlier age and are doing so in a very engaged manner. This means they are selecting the charities they support on more than emotion. They are devoting a greater effort to identifying worthy causes that can have the greatest impact and then following up on what the charity actually did with its investment.

Robert Kraft, the philanthropic owner of the Super Bowl-winning New England Patriots, acknowledged in a recent Boston Globe article that he engages a philanthropy consultant to assist him in shaping his philanthropic program. Designing Kraft’s program means sitting with the donor and learning what his interests are and what he hopes to accomplish with his philanthropy. Does the donor want to give restricted money or unrestricted funding? Does the donor understand the difference? Does the donor want to make an endowment gift that will last in perpetuity? Is donor recognition part of the gift transaction? All of these are important questions in philanthropy today, in addition to the obvious question of what impact a donor wishes to have with his or her money. 

Selecting the charities to support is also a challenge. Today, there is a great deal of information available about nonprofit organizations. Every charity must make its annual IRS information return, Form 990, available to the public. In addition, the website makes every 990 form filed with the IRS available instantly online. Most charities also provide their annual audited financial statements if they have not already posted them on their websites. Lastly, there are a number of charity rating services, all of which are easily identified via a Google search. The charity rating services essentially take the information from form 990 and use it to measure the charity against established criteria. Different services rate different aspects of charitable operations, so obtaining an overall picture of a charity must include checking multiple rating services.

Of course, reading and understanding all of this data may not be the best use of the donor’s time, and in many cases, it is beyond their expertise. This is a good task to offload to the philanthropy consultant experienced in nonprofit management. Foundations, corporations and individual donors do not want to learn that they may have wasted their donation on a charity that either didn’t need the funding or didn’t use it efficiently. A philanthropy consultant with experience in reading and understanding form 990 and nonprofit financial statements can take much of the mystery out of charitable operating performance indicators.

A philanthropy consultant can also prove invaluable in drafting the gift instrument. This is especially important when the donor is making a restricted gift, especially an endowment contribution, and/or when there is donor recognition involved. Large gifts often constitute negotiations between the donor and the charity, and all too often, donors feel dissatisfied with the charity’s performance after the funding has arrived. I have written numerous times about donors who have discontinued their pledges or sued to have their donations returned. Frequently, there are genuine misunderstandings over the intent of the gift or the extent of the donor recognition that could have been avoided with a little more work at the front end of the donation process.

Charities frequently want you to use their documents in making a gift. These gift instruments may contain clauses that appear innocuous, but which may provide the charity with the unilateral ability to change the purpose of the gift without consulting the donor. Variance power is one such clause that appears benign to the average donor, but which may be used by a charity to repurpose a gift or endowment fund without any external oversight. The philanthropy consultant will ensure that you understand all of the terms of your gift instrument and help you and the charity come to a successful mutual understanding where there might be an initial conflict.

Additionally, philanthropists are increasingly interested in performance measurement after the donation. Donors today realize that a single-year donation is frequently insufficient to affect meaningful change or progress in a charity’s mission. However, making multiple gifts or fulfilling a multi-year pledge is seen by most as inappropriate if the charity is not making progress toward the intended goal. When larger gifts are solicited, the charities usually promise results, knowing that results are what the donor is most interested in achieving.

Should you trust the charity to do its best with your donation? As President Reagan said, “Trust without verification” is not prudent. Once again, the philanthropy consultant can assist the donor and the charity to establish milestones of progress and then follow up to see that those milestones have been met prior to the fulfillment of successive funding transfers.

Who pays the philanthropy consultant? This is usually a donor expense. I believe it is deductible as part of the charitable contribution deduction, although the IRS has not specifically ruled on this. Part of the philanthropy consultant's fee could be absorbed or negated by the charities if they would commit to providing an adequate annual donor report wherein the charity certifies a statement of accomplishments tied to donor funding. There is no standard for such reporting at this time, and a charity may have to find a creative CPA to assist it in developing a reporting mechanism that will work for all parties.

In conclusion, the philanthropy consultant is a new professional in the philanthropic world, and one whose cost is easily justified by serious philanthropists eager to see that their funding achieves its intended purposes.