Family philanthropy has the power to transform communities, but achieving this impact requires purposeful decision-making. Selecting a philanthropic vehicle or vehicles is one of the most important choices you can make to support your giving goals.
So what is a philanthropic vehicle? Philanthropic vehicles are the tools and entities you can establish to manage your philanthropic resources and achieve your social impact strategy. If your philanthropic purpose is the why of your philanthropy, the vehicles are the how. Your choice of vehicle should be informed by your purpose. Types of vehicles include charitable vehicles, private sector vehicles, and civic engagement vehicles.
How do you choose the ones that are right for you? First, consider your philanthropic resources or your five Ts—time, talent, ties, testimony, and treasure. Next, consider your decision factors, purpose, resources, people, time span, and privacy. Your decision factors, as well as how you want to allocate your five Ts, will influence which vehicle best suits your preferences. Often, a portfolio of multiple vehicles may fit your needs best, so let’s talk about what different types of vehicles can offer.
Charitable vehicles are often the primary philanthropic structures for giving families. Your donation to these vehicles is tax deductible if you itemize and irrevocable, with all contributions earmarked for charity. One of the most common types of charitable vehicles is a private foundation, which is either a charitable trust or nonprofit corporation. Funds are distributed for charitable purposes. Private foundations are well suited to long-term philanthropic goals. They’re a great way to engage your family and have social impact.
Another great way to engage your family is through a donor-advised fund. It’s a simple and tax-smart vehicle to help you achieve maximum impact with your philanthropy. It’s administered by a charitable sponsor like Schwab Charitable that qualifies as an independent 501(c)(3) public charity. Donor-advised funds relieve the administrative burden for families and allow for flexible and anonymous gifts.
Families can also connect philanthropic purpose and profit through private sector vehicles. Private sector vehicles allow you to leverage the private sector for social impact, launch or transform your family business into a mission-driven one, or make impact investments. Examples of private sector vehicles include corporate social responsibility or CSR initiatives within a business to leverage its resources toward positive impact. Families may also choose to create social enterprises, benefit corporations and B-Corps to balance profit and purpose.
Many donors opt to invest all of their capital for good. Socially responsible investing, sustainable investing and program-related investments are all types of impact investments. This type of investing aims to generate social or environmental benefits while delivering a financial return. Many families create a limited liability company or LLC for maximum control, flexibility, and privacy. They can promote impact investing, advocacy efforts, and traditional grant-making without the restrictions of tax exempt organizations.
Finally, civic engagement vehicles complement the work of charitable and private sector vehicles. Civic engagement vehicles can be used to improve the quality of life in communities through both political and non-political processes. 501(c)4s are social welfare organizations with the ability to lobby, and 527 political organizations influence the selection, nomination, election, appointment, or defeat of candidates for public office.
Some donors like to take action with their peers, combining their five Ts into one pool of resources for outsized results. Peer-based vehicles include crowdfunding, giving circles, social movements and mutual aid networks.
There are many options to choose from, but selecting a philanthropic vehicle doesn’t have to be overwhelming. We encourage you to consult with a professional to explore the different tax and legal implications for each vehicle. To download our guide and learn more about supporting your family philanthropy efforts, visit our website.