Some of today's biggest charitable givers are shaking up the endowment world by applying the same business savvy that earned them millions to their approach to charitable giving.
"Once you're dust, you're dust," says Brett Wilson, a Calgary-based investment banker and philanthropist. "This idea of setting up a legacy for 100 years is shameful - it's an empire-building strategy.
"But what's at the core of it other than ego? You could make a lot more efficient use of that money in 10 or 20 years."
Mr. Wilson, who gained a profile as a deal maker on CBC's Dragon's Den, is on the extreme end of a new trend in Canada in which philanthropists are taking a page out of billionaire investment guru Warren Buffet's book. The brains behind Berkshire Hathaway Inc. isn't setting up a charitable legacy that will be around for hundreds of years. Instead, he has said 99 per cent of his wealth will go to charity before or shortly after his death.
It's a brand new approach to giving. Historically in Canada and the United States, wealthy industrialists would decide later in their lives how much of their wealth would go to charity. Then, as part of their estate planning, they would establish a foundation or endowment that would be funded at the time of their death. The contribution would be invested conservatively, with the interest earned handed out in grants over many years.
"The Mellons, the Carnegies, the Rockefellers, the Fords - they all tended toward the perpetual model where the money is endowed," says Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group. "But people are changing the way they think about their legacy. Buffet's is the newer approach and we're seeing a number of others doing this, giving more away during their lifetime. There's more impatience now."
Mr. Wilson calls endowments "the biggest waste" for their inefficient use of capital.
"Instead of $100-million earning three per cent, why not burn that endowment, use it over 20 years. If the cause is worthy, treat it as a new capital program," he says. "Many think that if they raise a big enough endowment they won't have to fundraise again. That's just a condemnation of their own ability to raise funds down the road."
Mr. Wilson, who donates to charity through two foundations and also makes direct corporate donations, plans to do most of his giving during his lifetime.
Several factors are driving the trend toward high-speed giving, says Mr. Burrows.
First, attitudes are shifting. "There's a new, bolder thinking, People are getting more involved earlier on," he notes. "Entrepreneurs who earned their money are thinking about the social and charitable sector in business terms."
Also, despite financial collapses and high-tech bubbles, more Canadians are becoming significantly wealthy. "When you are engaged during life, the trend is toward larger personal gifts," says Mr. Burrows.
There are also tax advantages. In 1996 Canada's tax laws pertaining to charitable giving changed dramatically. Prior to that, such gifts were taxed, creating a huge disincentive.
Since then approximately 20 new tax incentives have been introduced, most focused on large gifts of assets or capital. Now, for example, Canadians can give public shares or stock options to charity without paying capital gains.
"More people are giving more today," says Mr. Burrows.
Despite this recent trend to make charitable donations during one's lifetime, many wealthy Canadians opt for the trust model, establishing a tax-exempt charitable trust during their estate planning, says Mr. Burrows, whose team at Scotia Private Client Group advises 470 charitable trusts and foundations worth a total of $1.4-billion. Upon death, the trust is funded and then managed by trustees based on the wishes of the giver.
The bank's charitable advisory division has also established a special foundation to handle the increased number of large one-time gifts in Canada. The Aqueduct Foundation, set up in 2006, sends funds to specific charities and facilitates big donations that are not earmarked to become perpetual trusts.
"We created it because there's so much of this going on now [that]you need a charity to hold it and make orderly distribution," says Mr. Burrows.
The foundation, which charges a percentage of the assets transferred, has received more than $250-million and disbursed $60-million of that. Gifts can be capital, not just income, at a minimum of $250,000.
Many Canadians still want their philanthropic gifts to keep on giving, however. The key to establishing a charitable legacy in perpetuity, Mr. Burrows says, lies not in the details, but rather in the lack of detail.
"The best way to keep these legacies intact is to have a dynamic purpose," he notes. "Be clear and yet broad about your purpose so that your vision won't become frozen in time. The world changes and you don't want the trust to get stuck on the letter of the law."
Special to The Globe and Mail
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