The Giving Landscape in Recent Years
Since the end of the COVID pandemic, high net worth individuals’ charitable contributions have remained at consistently high levels. In 2022, individuals with a net worth of at least $30m contributed a total of $190bn to philanthropy causes – an increase of almost 25% since 2018 and comprising almost 38% of all charitable giving. Regionally, wealthy individuals in North America were the source of nearly half of these donations ($91bn), reflecting a huge source of capital for non-profit organizations across a variety of causes.i
While many might assume that this trend is largely isolated to older generations of individuals who have had decades to build and accumulate wealth, additional research shows that the sentiment of giving is apparent even when assessing a range of demographics including younger individuals with a lower net worth threshold. Last year, Bank of America Private Bank conducted a comprehensive survey of over 1000 respondents over the age of 21 with at least $3 million in investable assets –even despite these broadened parameters, the survey still found that over 90% of respondents recently made a charitable contribution, with 88% of respondents saying that they were prepared to support future philanthropic causes.ii
No matter what age or net worth range you analyze, the landscape is clear: charitable giving is growing globally across all demographic factors. At PCM Encore, our team sees a similar trend taking place as individuals have embraced recoverable grants as a way to maximize their charitable impact over time beyond the value of their initial contribution.
Recoverable Grants Maximize the Impact of Charitable Contributions Over Time
Most investors understand that engaging in philanthropic giving through their portfolios yields numerous tax benefits, but most are unfamiliar with the concept of leveraging recoverable grants to further increase the impact of their contributions. Recoverable grants are an efficient way for donors to maximize the monetary and temporal impact of their charitable contributions by maintaining their potential to be returned to the original donor once the nonprofit has achieved their explicit program goals. Typically, these grants are used to bridge funding gaps by allowing 501(c)3 nonprofit organizations to begin providing their services to executing on their missions before money arrives from government sources, institutions, or other longer-term pledges. In this sense, recoverable grants have established themselves as a crucial source of liquidity for nonprofit organizations that may not have immediate access to traditional donor pools.iii These grants serve as a crucial source of new balance sheet capital for nonprofits that are unable to access debt.
When the nonprofit in question achieves their outlined goals using the initial grant, the sum of the donation is subsequently returned in full to the original donor – who, in turn, can use that same amount to fund a separate or additional cause, multiplying the monetary impact of that same pool of money. If the organization fails to meet their stated goals and use cases for the grant, the initial contribution is then kept by the nonprofit and considered as a typical donation. It is important to remember that recoverable grants are not loans, but rather a tool that reflects the option for capital to be repaid if objectives are met. Donors should be comfortable with treating their initial contribution as a proper donation, with the possibility of repayment and repurposing of funds should the nonprofit deliver on its stated mission. Clients seeking to leverage this tool should not choose to contribute money that they would not already be comfortable with donating ordinarily, as repayment is not guaranteed.
Recoverable grant value requirements can vary depending on the nature of the nonprofit organization and program, but the minimum amount is generally accepted to start at $25,000 per portfolio, along with a one-time fixed fee. Due to the nature of such grants being processed through charitable entities, donors can also use their initial contributions as tax deductions when the donation is made.
Learn More About Recoverable Grants with PCM Encore
At PCM Encore, we recognize that our clients will often allocate a portion of their portfolio to a charitable cause or organization that is of personal importance to them. Our goal is to ensure that our clients are educated in the full spectrum of opportunities that recoverable grants provide in maximizing monetary impact beyond the initial contribution, and to position philanthropic giving as an investment that can continue to pay off over time. To learn more about how to efficiently allocate for charitable contributions, reach out to our team at hello@encoreinvestment.com or book an introductory meeting here.
Reference
- i. https://altrata.com/reports/ultra-high-net-worth-philanthropy-2024#:~:text=Key%20findings%3A%20Ultra%20wealthy%20philanthropy%202024&text=These%20individuals%2C%20who%20each%20have,8%25%20of%20all%20individual%20giving
- ii. https://newsroom.bankofamerica.com/content/newsroom/press-releases/2024/10/bank-of-america-private-bank-study-of-affluent-americans-finds-g.html
- iii. https://www.morganstanley.com/content/dam/msdotcom/what-we-do/wealth-management/gift/ms-recoverable-grants-faqs.pdf
