The Future of Philanthropy: Blurring of Lines

May 14, 2024
What does the future of philanthropy look like in a changing landscape? Head of Philanthropic Advisory Kerri Mast explains how the once-defined “lines” governing philanthropy are beginning to blur and how to take advantage of these changes in your giving plans.

As we consider the future of philanthropy, we expect to see blurring lines, and it is a good thing! In other words, as families are increasingly global, the geographic lines that once dictated grantmaking continue to blur. The line between investing and grantmaking is becoming blurry as philanthropists try to ensure their investments align with their purpose. And as clients consider their legacy in an integrated way, the line separating philanthropy from other aspects of life is becoming blurry.

In this article, we explore several instances of this “blurring” and provide examples for how philanthropically minded individuals can embrace this blurring in their giving and investing plans.

Blurred Geographic Lines – Cross-Border Giving Likely to Continue

From the Gold Rush of 1849 to the Bakken Boomtowns of 2006, Americans have demonstrated a willingness to move in pursuit of opportunity. Although data suggests that geographic mobility in the U.S. has been declining generally, families of affluence in the U.S. and around the world remain mobile. People with wealth may move for any number of reasons – opportunity, political stability, favorable tax structure, lifestyle – and studies suggest that the wealthiest people in the world are also the most mobile.

Multinational philanthropic families will often seek opportunities to engage in cross-border giving. In fact, charitable giving outside of one’s home country is a growing segment of philanthropy. Cross-border giving is not without its challenges, regardless of the philanthropic vehicle that is used. For example, U.S.-based philanthropists cannot give directly to a foreign organization and receive a tax deduction.

There are, however, several options to help U.S.-based philanthropists meet their cross-border giving goals in a tax-friendly way, including affiliate organizations, expenditure responsibility, and equivalency determination.

The most efficient strategy is granting to an affiliate organization. An affiliate organization, often known as a “friends of” organization, is structured in the U.S. as a fundraising platform and provides tax deductibility for U.S.-based philanthropists.

If granting to an affiliate is not an option, philanthropists who want to engage in cross-border giving through their private foundation or donor-advised fund may use expenditure responsibility (ER). ER is an enhanced level of due diligence designed to ensure that each grant is used as intended.

A third option is making an equivalency determination (ED), the process through which a determination is made that a foreign grantee is the equivalent of a U.S.-based charity.

The IRS provides clarifying guidance on the specific requirements for both ER and ED to help philanthropists ensure compliance. There is also a cadre of partners and vendors who will complete the necessary due diligence, which allows philanthropists to focus on what they care about – grantmaking – while outsourcing the compliance.

In the coming decade, wealthy families likely will continue to move to cross-border locations. Driven by the recognition by multinational families of need across the world, the interest in cross-border giving will continue and increase. As a result of this increased interest, the IRS is likely to provide additional clarifying guidance. Further, market providers will work to develop solutions that help multinational families accomplish their goals. As a result, multinational philanthropist families will be better positioned to accomplish their philanthropic goals regardless of geographic lines.

Blurred Lines Between Grantmaking and Investing

Philanthropists often address society’s most pressing challenges through their grantmaking. They make grants to charities that work toward addressing issues such as climate change, hunger, and limited opportunities through arts and education. Increasingly, though, philanthropists are taking a broader view.

Instead of focusing solely on grantmaking, philanthropists may try to further their philanthropic goals through their investment returns, thus blurring the line between grantmaking and investing. While traditional investments solely seek financial return, philanthropists may seek investments where there is a potential for positive social impact in addition to financial return.

There has been a growing interest among philanthropic investors around environmental, social, and governance (ESG) investing. ESG investing involves assessing environmental, social, and governance criteria – such as climate change risk, labor practices, and risk management – and incorporating these qualitative criteria into the decisions relating to investment selection and the portfolio construction process. The focus on qualitative criteria slightly blurs the line between grantmaking and investing. However, ESG investing is profit-oriented, and investors should not expect to sacrifice return by using this approach.

Impact investing is an evolving practice that seeks to generate positive social impact and positive financial return. It involves direct investment in a company with an intent of having an impact on a specific cause (for example, making an investment in a for-profit safe drinking water company in Africa). The extent to which impact investments weigh and prioritize social impact and financial return varies depending on the investor.

One type of impact investment is a program-related investment (PRI). A PRI prioritizes social impact above financial return, meaningfully blurring the line between grantmaking and investing. For a PRI, the primary purpose is to accomplish one or more of the foundation’s exempt purposes, and the possibility of a financial return is secondary.

In the coming decade, philanthropists will continue to seek creative solutions to society’s biggest challenges. In addition, philanthropists will want to ensure that their investment objectives are aligned with their philanthropic objectives. As a result, the line between grantmaking and investing will continue to blur.

Blurred Lines Between Philanthropy and Legacy

“Legacy. What is a legacy? It’s planting seeds in a garden you never get to see.” – Lin-Manuel Miranda, “Hamilton: The Revolution”

Increasingly, clients are thinking about their overall legacy in an integrated way, blurring the lines between philanthropy and other aspects of their lives. The seeds of legacy may include philanthropy, family, community, and professional life. Effectively leaving a legacy begins with identifying core values – the values that are underlying all aspects of a person’s life – and aligning those values with the overall plan. Consider the following example:

Cameron was born in a midsize Southern town and was diagnosed with dyslexia as a child. He worked hard to overcome the challenges associated with his dyslexia. After college, Cameron began working with a real estate developer and eventually left to start a successful residential and mixed-use real estate development firm in the then-burgeoning Southern city. The rapid development created great opportunity for Cameron’s business, but the city was faced with certain challenges relating to lack of economic mobility for its most vulnerable citizens.

When thinking about legacy, Cameron wanted to be certain the philanthropic component was integrated with his community and professional experiences. Cameron created a foundation with a twofold grantmaking strategy focused on providing opportunity with an eye toward increasing economic mobility in the community. The first grantmaking pillar focused on learning differences, with specific interest in early diagnosis and treatment. The second grantmaking pillar was on the full range of affordable housing options. Desiring to bring the full range of real estate business acumen to bear, Cameron assembled an advisory board of real estate professionals to work toward effective affordable housing solutions.

In this example, Cameron reflected on overall legacy in a way that integrated community, business, and philanthropic interests. This integration between philanthropy and other aspects of life is likely to continue, as it draws on core values to create a legacy that is deeply personal and meaningful.

The blurred lines of philanthropy likely will continue into the next decade. It reflects the determination of families to find creative solutions to collaborate on issues that are important to them – wherever located. It reflects a desire for alignment across investment and philanthropic strategies. And it reflects a desire to leave a legacy that is reflective of values and is meaningful.

To learn about how BBH can help you and your family accomplish your philanthropic goals, reach out to your BBH wealth planner.

Contact Us

Up Next
Up Next

Navigating the Philanthropic Journey

We cover key areas of the philanthropic journey, highlighting considerations when thinking about how to give back.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2024. All rights reserved. PB-07360-2024-05-01

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction