Financial Planning for Philanthropy

By Jafet Pabón Rodríguez, Popular One Senior Private Banker

Individuals, families, and companies that engage in philanthropy share a common philosophy: make the world a better place. It is well known that the government's spending for these purposes is often cut back, making donations from individuals and companies even more important.

According to a study conducted in 2022 by research firm Estudios Técnicos, Inc. on the economic and social impact of nonprofit organizations in Puerto Rico, the main source of funding for charities in the island is individual donations, which account for 41.2% of all contributions. Therefore, any decision to engage in philanthropic activities, be it as an individual or as a business, should be included in your financial plan². This helps ensure that the philanthropic endeavor will not end with a donor's death or management changes in a company.

Mechanisms to practice philanthropy

1. As part of the budget – The most usual way of engaging in philanthropy is to set aside an annual, monthly, or weekly allocation. The important thing is to identify it and include it as a recurring stream in your budget. While this form of philanthropy significantly impacts the causes it supports, no additional planning is involved beyond writing a check or making a wire transfer.
2. Trusts – When a project intended to benefit a philanthropic cause requires significant effort and coordination, establishing a trust can be an excellent strategy. Many families have established trusts to support causes with which they empathize. By doing so, they ensure that the funds identified and set aside will serve their purpose now and for future generations.
3. Wills – Throughout our lives, we have control over the worthy causes we want to support with our donations and financial resources. But what happens if you wish to continue supporting your preferred causes after death? The only way to ensure estate assets are allocated to the charities of your choice is through a will. This must be explicitly established in the free portion of the will, which may reach up to 50% of the estate in the case of individuals with direct heirs (spouse or descendants), or up to 100% if there are no heirs and the bequeathed estate is freely available for distribution.
4. Foundation – If the family or company has a large-scale project requiring significant resources, they may choose to set up a charitable foundation. This is usually considered the charitable wing of a family or company. To this end, they develop a nonprofit organization focused on a social cause to which they pledge economic and human resources. Fundación Banco Popular, established in 1979, is an example. Created by Rafael Carrión, Jr. based on the need for a philanthropic organism to advance Popular's social responsibility. To date, Fundación Banco Popular has contributed more than $50 million to over 300 organizations that positively impact tens of thousands of children, teenagers, and adults in Puerto Rico.

It should be noted that any donation made to a duly qualified nonprofit entity is 100% tax-deductible.

There are many ways to engage in philanthropy, and when it comes to helping those in need, no amount is too small. If an individual, family, or company is interested in sharing their wealth and creating a long-term social impact, it is important to formalize these intentions through a financial planning process that will reflect this goal, not only during an individual's lifetime, but also for generations to come.

Our team of experts at Popular One¹ are ready to assist you in developing your philanthropic financial plan and help you manage your finances, investments³, risks, or business insurance. Contact your Private Banker today. Call us at 787-281-7272 or email us at 787-281-7272 or email us at popularone@popular.com.