Beyond spontaneous charity

Probably the most common question I receive from clients at work is some version of, “Can you tell me which low-risk bonds are paying the highest rate right now?” The truth, however, is that simply loading up on whichever bonds are yielding the most at the moment – even if those bonds are relatively low-risk – is usually not the most effective strategy. Among other things, clients should consider how long they want to stay invested, their expectations of interest-rate cuts, and how easily they can convert their investments back into cash should the need arise. Effective investing takes advantage of the various “tools” available.

It’s equally important to consider one’s available “tools” when it comes to charitable giving. Although measuring the “returns” on one’s giving is much less straightforward than calculating the gains on one’s investments, it’s still an act of stewardship for Christians to spend some effort maximizing the effectiveness of their generosity. Jesus instructs his followers to spontaneously give to those who ask (Matt. 5:42), but many Christians have also been given the financial resources for more planned, systematic giving. When it comes to the latter, it’s a good idea to think through not only how much and where to give, but also the tools available to donors to achieve the greatest impact.

Direct giving to charity

The most familiar and straightforward way to give is by cutting a check to a charity or other nonprofit organization that advances the kingdom. This can take the form of spontaneous, often one-time cash gifts in response to an acute crisis (e.g., natural disasters, wars), but it can also involve long-term, systematic giving for large-scale projects. Most organizations need both immediate and sustained donations. World Renew Canada, a Christian ministry which made Charity Intelligence’s Top 100 list in 2023, assists in immediate disaster relief, but its primary mission is to lift families and their communities in the majority world out of poverty. This latter mission requires sustained and consistent giving over long periods of time.

Besides examining the organization’s values and beliefs, it’s good stewardship to do some research into the organization’s effectiveness. It’s important to recognize that low overhead is not synonymous with high impact. Low overhead can signal efficiency, but it can also indicate that an organization has not or cannot build the infrastructure or hire the personnel it needs to be truly effective, a phenomenon that has been dubbed “the nonprofit starvation cycle.” A 2019 report by Maclean’s found that charities at both the high and low ends of employee compensation tend to receive a lower impact rating from Charity Intelligence.

Giving through foundations

Over the last decade, an increasing number of Canadians have availed themselves of an alternative method of charitable giving in addition to, or even in lieu of, direct donations to traditional charities and nonprofits. Foundations are themselves generally registered charities and can do charitable work, but that is not their focus. They primarily invest and manage donations (which grow tax-free) while periodically making grants to charities working on the ground. Perhaps the most famous example is the Bill and Melinda Gates Foundation, which supports a wide range of nonprofit medical and educational work throughout the world.

Foundations come in two basic types: private and public. Private foundations are established by an endowment from an individual or family, which is then invested in perpetuity. The control persons of the foundation (typically the donor and/or his family) then make grants from the proceeds. Private foundations do not legally require any minimum endowment, but the legal and administrative costs involved typically make it a practical option only for those able to contribute at least six (and more often seven) figures.

A public foundation, conversely, is controlled by a larger group of unrelated individuals, and it is funded by a wider base of donors as well. Several large Christian public foundations operate in Canada, managing funds and in some cases providing educational or administrative support to ministries directly engaged in kingdom work. Public foundations generally take donations from the public that are earmarked for specific projects or ministries, but they also allow for the creation of “donor advised funds” (DAFs). For example, Christian Stewardship Services (a Christian Courier advertising partner) offers DAFs. Donors to these funds cede legal control over their donations, but they can make recommendations to the fund to make grants to specific recipients. These must be registered charities according to the Canada Revenue Agency (CRA). Like all charitable organizations, DAFs are required by the CRA to make a minimum distribution of 5 percent of assets annually, but there is no set maximum. Discerning donors who check the CRA’s publicly available reports for registered charities may be pleased to see that their favourite foundations actually disperse far more than the 5% minimum.

Pros and cons of foundations

For a Christian, the main attraction of foundations is that they allow one to invest the funds intended for kingdom work. Used well, they can grow these funds over time tax-free, which is especially helpful if donors know that they want to financially support Christian causes but are not yet sure which specific ministries to back. But even if donors have identified recipients, foundations can create a sustainable way of funding these ministries over the course of decades. Some foundations, like the B.C.-based Great Commission Foundation, also handle administrative tasks like payroll and compliance for smaller ministries.

But before giving to a foundation, donors should be aware of a few things. As noted, donations become the property of the foundation, which therefore has the last word on what happens with the money. Legally, foundations are required to make grants only to organizations recognized by the CRA as registered charities. If donors haven’t done their research, there’s a chance that may not include their favourite ministries. The most common criticism of foundations, however, is that they allow donors to receive immediate tax benefits for their donations, which could then grow in perpetuity without either the donor or the foundation’s directors being required to give much thought to the actual use of the funds (beyond the mandated 5 percent annual disbursement). This means that if the foundation’s annual rate of return is sufficiently above 5 percent, money could “stockpile” for decades without helping anyone. Christians might remember the passage in which Jesus rebukes the Pharisees for permitting people to donate to the temple rather than support their aging parents (Mark 7:11).

In short, foundations provide a powerful tool for believers to support Christian ministries over the long haul. At the same time, they require an extra measure of responsibility. After all, the common criticism that foundations provide hefty tax benefits in exchange for relatively little actual giving is not completely unfounded. In whatever way a Christian chooses to give, following Jesus means erring on the side of generosity.