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

Eliane Chavagnon

30 October 2012

Average 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 , 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 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 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 , and because they trust the efficiency of the organization . 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" . Other explanations included the organization changing leadership/activities , the donor shifting philanthropic focus , changes to household circumstances and being no longer personally involved with the organization .

The societal and public policy issues which matter most to wealthy donors today are education , followed by healthcare , the economy , poverty and the federal deficit . 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 and individuals .

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 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 , followed by religious organizations and non-profits themselves .

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.