HNW Households As Devoted To Philanthropy As Ever, If Not More So - BofA Study

Eliane Chavagnon, October 30, 2012


giving as a percentage of high net worth household income "held steady"
at about 9 per cent between 2009 and 2011, while three-quarters of
wealthy donors expect to give "as much or more" over the next three to
five years, regardless of potential tax law changes, according to Bank
of America's 2012 Study of High Net Worth Philanthropy.

An overwhelming 95 per cent of HNW households gave to at least one
charity last year - a finding consistent with the previous studies in
the series and which compares with 65 per cent of the general US
population who donate to charity. Meanwhile, in forecasting their giving
plans for the next several years, 52 per cent of wealthy donors said
they plan to give “as much” and 24 per cent intend to give more through
2016, compared to their charitable contributions in the past. Only 9 per
cent plan to give less.

Of the 700 HNW US households surveyed by Bank of America
on their giving and volunteering behaviors for the year 2011, half said
they would maintain their current charitable giving levels even if
income tax deductions for donations were abolished. At the same time -
and somewhat surprisingly - 95 per cent said they would maintain or
increase their bequest giving if tax deductions for estate gifts were
eliminated permanently.

BofA's results come at a time when there are concerns that the desire
by individuals to give to charity might be blunted by a weak economy.
Yet the firm noted that individuals accounted for 70 per cent of the
nearly $300 billion given away in 2011, of which about half came from
the wealthiest 3 per cent of US households. And while philanthropy has
always been part of the US’s fabric, Claire Costello, philanthropic
practice executive for US Trust, BofA private wealth management, said it
is “more popularized” currently.

“We see much more information about celebrities and average citizens
alike and their good deeds, and all of that is very much part of our
culture in a new way,” she told Family Wealth Report.
“I think it’s hard as an advisor to miss that and so I think giving is
becoming a much more integrated aspect of the wealth experience and so
it must be considered into the wealth planning process.”

She added: “Advisors should begin with what matters most to their
clients and their families – their values, life goals and philanthropic
aspirations – rather than their quarterly statements and portfolio
documents, because only upon understanding these aspects of their wealth
experience can they effectively advise them. Otherwise you’re just
structuring or investing their wealth in a vacuum.”

Strategic giving

Despite the challenging economic environment, BofA's 2012 report
suggests that donors are more focused in how and to whom they give, with
71 per cent of respondents claiming to have a specific strategy in
place. Reinforcing this movement, 81 per cent apply "a certain level of
focus" to their charitable activity, giving to a targeted set of
organizations based on geography or a specific cause. By contrast, 16
per cent give with "no particular" focus.

“Giving your money away is easy, but giving your money away well is
extremely difficult and that’s why we were really impressed with the
number of people that really do understand that they can have more
impact if they look for intervention points,” Costello said. 

“Having that level of intention around your giving is hard to do and
discipline. There’s also a lot of reactive giving which is a hazard I
think wealthy donors face - it’s very hard to say no to your friends or
business associates…it’s a hard social equation and I think it’s
tremendous that this many are focused at all,” she added.

Meanwhile, whilst charitable provisions in a will are still the most
commonly used giving vehicle (43 per cent), the use of other vehicles is
on the rise. A total of 19 per cent of wealthy households gave to
giving vehicles like a private foundation or donor-advised fund last
year, compared to 16 per cent back in 2009. Just over a quarter (26 per
cent) report having a private foundation or donor-advised fund, with an
additional 5 per cent planning to establish one over the next few years.

Similar to the previous study, BofA noted, the 2012 survey showed
that most (74 per cent) wealthy individuals are motivated to donate
because they are moved by how a gift can make a difference. After that,
financial security was cited by 71 per cent, followed by the routine of
giving to the same organization/cause annually (69 per cent), and
because they trust the efficiency of the organization (68 per cent).
Also, as Costello said: “We certainly see that with the downturn that
needs have become more acute and I think that informs a lot of people's
decision to step up.

"There's also the fact that we're in the throes of the largest
post-industrialized intergenerational transfer of wealth ever seen,
estimated at about $41 trillion being passed from generation to
generation," she added.  

As well as being more strategic in their giving, donors are "more
engaged" through volunteerism and giving more to organizations with
which they are personally involved. For example, 82 per cent of wealthy
donors expect non-profits they support to spend "an appropriate amount
of their donation" on general administration and fundraising, with 76
per cent expecting these organizations to demonstrate "sound business
and operational practices".

Although average giving as a percentage of HNW household income held
steady last year, 30 per cent of wealthy donors ceased giving to at
least one non-profit organization, the top reason for which was donors
receiving "too frequent solicitation" or because the non-profit asked
for an "inappropriate amount" (30 per cent). Other explanations included
the organization changing leadership/activities (29 per cent), the
donor shifting philanthropic focus (27 per cent), changes to household
circumstances (22 per cent) and being no longer personally involved with
the organization (12 per cent).

The societal and public policy issues which matter most to wealthy
donors today are education (60 per cent), followed by healthcare (45 per
cent), the economy (38 per cent), poverty (34 per cent) and the federal
deficit (33 per cent). In terms of confidence in the societal groups
and institutions averring to solve domestic and global problems, the
majority have most faith in non-profits (91 per cent) and individuals
(90 per cent).

The next generation of philanthropists

The "holiday spirit" often encourages more generous giving, BofA
said, with 43 per cent of those with giving traditions saying they make
more charitable contributions between October and December than during
the rest of the year. Meanwhile, just under half (44 per cent) spread
their giving evenly throughout the year.

Also of note, the survey found that a third of wealthy donors involve
their children and other younger relatives in household philanthropic
activities. A family’s personal efforts and those of their friends and
peers continue to be the leading sources by which the next generation
learn about giving (51 per cent), followed by religious organizations
(34 per cent) and non-profits themselves (21 per cent).

In terms of what advisors can take from the this year’s insights,
Costello said: “It matters to understand what your clients’ goals are
with their wealth: how meaningful their wealth is to them, what would
make their wealth more meaningful, and what would make their wealth
become true prosperity, not just a number on the balance sheet. It can
be transformational in that way - and it ought to be - and that’s one of
the challenges for advisors today.”

The survey results are based on a nationwide sample of 700 households
with a net worth of at least $1 million and/or an annual income of
$200,000 or more. It was conducted between April and September.


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