ELITE ADVISOR BEST PRACTICES

The Cross-Fertilization of Finance and Philanthropy - Part Six

A scholarship financed with annual gifts and balloon payments (philanthropic mortgage)

By Steven Meyers

Key Takeaways:

  • Could a donor be very sophisticated financially and still not know how to ask?
  • How will charitable spirit find a way?
  • A “philanthropic mortgage” allows donors to stagger the amount (and timing) of their gifts to match their personal time horizons and deliver maximum impact.

Meyers

Doesn’t know how to ask—Naive, curious, inquisitive, questioning, searching

In Part Five of this article series, we explored the power of spending rate to transform your clients’ philanthropic objectives. Here we’ll explore ways in which savvy advisors and gift officers can help charitably inclined clients finance a scholarship or other project with annual gifts and balloon payments to create a de facto “philanthropic mortgage”

Meyers

Doesn’t know how to ask—Naive or searching for the right gift at the right time? To characterize as naive a person who is a sophisticated financial advisor and shrewd investor seems totally off base—until you learn the inside story. Harold and his wife, Diane, have a very deep and powerful charitable impulse. Most would consider Harold very sophisticated financially, yet it had never occurred to him that he might apply a key part of his financial knowledge to philanthropy.

However, once Harold and Diane imagined an “endowment” program that is powered by a combination of current and future gifts (like a virtual endowment), they had less difficulty envisioning variations on this theme.

Harold and Diane have children who will soon graduate from college. They can realistically see a time not far in the future when the funds they have been using for tuition might go for something else, perhaps something philanthropic.

Harold is a successful businessperson and investment manager. He understands how money can work in different ways and was willing to try applying some proven financing approaches to advance his own philanthropy. His plan enabled him to embrace an innovative way to support a student, consistent with his current and future prospects.

The funds for an outright scholarship would be coming on-stream when their children finished college. For the present, Harold and Diane are comfortable making annual gifts that could be used for the maintenance costs of a scholarship program (e.g., $7,500 each year for the first four years). Harold would equate this to a purchase or loan, just paying “interest” (really the annual maintenance) during the early years.

Then, in the later years, while continuing to maintain the scholarship program with annual gifts, Harold and Diane would be able to make larger payments to build equity in their program and fully establish their scholarship program ($7,500 + $50,000 for the last three years). In Harold’s terms, from a financial perspective he would be making three balloon payments at the end of the term.

In any case, Harold and Diane were able to build a financial strategy that fit the time horizons of their lives. This form of gift, similar to what you might think of as a "philanthropic mortgage," meant that their scholarship could begin immediately and that they would be recognized for the important support they were providing deserving students on a timely basis. After all, when you buy a home, you don’t have to wait until it’s fully paid off before you move in. You get a mortgage. Why not apply this familiar approach in order to build equity and begin the recognition and impact of your scholarship or other endowment immediately?

How we count it

In this case, the university’s financial statements would recognize a commitment to payments running over seven years ($7,500 x 7), including in the last three years balloon payments of $50,000. The total gift under the agreement would be $52,500 + $150,000 = $202,500.

Conclusion

For the four (or more) philanthropists in you

As your comfort level increases with the three game-changing personalized gift designs we have described in this article series—which I think of as new applications for consolidating basic building blocks and charitable vehicles under a single umbrella or game plan—you can add great power to your charitable giving.

Working with your financial resources and charitable intent, along with these tools of personalized philanthropy, you, your advisor and your gift officer can forge a true alliance without the push-pull impedance and seeming sales-force dynamic that so much of fundraising seems to engender.

This donor-driven process enables you to achieve important goals on your own terms, where the impact and recognition of your charitable support begins right now and grows in future years.

As the commentary states so well, because we all possess the four children within ourselves, perhaps we also possess the four donors: we are in essence speaking to the wise, wicked, simple and unable-to-ask elements in all of us.

Next we’ll look at the three pillars of personalized philanthropy.


About the Author

Steven L. Meyers, Ph.D., is Vice President of the Center for Personalized Philanthropy at the American Committee for the Weizmann Institute of Science. Steve is a primary developer of personalized philanthropy, based on his mantra of “the right gift, for the right purpose, for the right donor.” Steve’s innovative donor-focused gift designs, especially a series of arrangements he calls “killer apps,” combine the full spectrum of current and future gifts so that donors can create a lasting legacy where impact and recognition are able to start up right away.