Giving When Crisis Strikes

OCEAN CITY – Gillian Howell still marvels at her clients’ responses to the devastating Jan. 12 earthquake that ravaged the island nation of Haiti, the poorest country in the Western Hemisphere.

"One family, who had connections with many of the aid organizations that were doing relief work, actually went to Haiti and volunteered for quite a while," says Howell, head of private philanthropy for Bank of America Merrill Lynch. "They were involved in different community efforts, feeding people, building shelters and working with their family foundation to make sure their giving helped as many people as possible."

Natural disasters and other crises show human suffering at its worst, but they can also evoke human generosity at its best. But crisis giving is sometimes left out of philanthropic plans until the last minute, often for a simple reason: No one likes to imagine the unthinkable happening.

Unfortunately, as we have seen with the earthquake in Haiti, the 2004 Indian Ocean tsunami and even Hurricane Katrina, the unthinkable happens all the time — and having a broad-ranging, careful plan in place can be crucial to both maximizing your impact and making sure your contributions continue to make a difference.

Responding to a disaster is increasingly a two-step process, in which the follow-up to an initial donation can maximize the long-term effects of the gift, says David Ratcliffe, managing director for Institutional Investments and Philanthropic Solutions, Merrill Lynch. "Donors looking to fund relief efforts understand that organizations need ready, unrestricted cash," Ratcliffe says. "But after they’ve made that immediate gift, they’ll step back and ask, ‘How can we help rebuild infrastructure? How can we help shore up the educational system? How can we help the environment?’"

Donors’ desires to provide both immediate and long-range philanthropic aid can be complicated by personal financial strains during these turbulent economic times. Howell notes that many clients have had to make significant adjustments to their approaches and goals for giving. The financial crisis has taken a particularly heavy toll on the finances of one popular philanthropic vehicle, the private family foundation, which enables family members to take an active role in awarding grants. The number of foundations has grown by 80% since 1998, but Ratcliffe points to Giving USA, a report from the GivingUSA Foundation, which tracks charitable trends, showing that in 2009, foundation grant-making declined almost 9%.

"Much of that decrease has to do with the market value of foundation assets," Ratcliffe says. Because foundations must make qualifying distributions of a specified minimum amount (equal to approximately 5% of fair market value of the assets annually) to avoid significant taxes, the cumulative impact of market losses can have a compounding effect, reducing both capital and philanthropic effectiveness.

In some cases, families with foundations have opted to increase their grant-making to respond to the immediate needs of the organizations they serve rather than try to rebuild their endowments. Howell says she has seen a significant increase in so-called sunset provisions, which specify a period during which the foundation will pay out all its assets.

For those who worry that a foundation can be too unwieldy and complex, especially in an uncertain market, donor-advised funds offer a convenient alternative. These popular philanthropic vehicles can choose to defer disbursements until their assets rebound. They are also simple and private; you may give anonymously if you wish.

"Our clients want to effect change, they want to give back, and their reasons have always been more altruistic than financial. Now, they’re also getting more creative about how and what they give," said Howell.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)