Tax breaks aren’t prime reason for high-net-worth philanthropy

Tax breaks aren’t the primary incentive for philanthropy among the ultra-wealthy, according to BNY Mellon Wealth Management’s inaugural Charitable Giving Study.  

The report, polling 200 individuals with wealth ranging from $5 million to more than $25 million, found the top three motivators were personal satisfaction, connection to a cause or organization and a sense of duty regarding giving back.

By contrast, tax benefits ranked among the bottom three reasons for donating money to charity, the findings show.

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“The findings in the BNY Mellon study aren’t surprising,” said Juan Ros, a certified financial planner with Forum Financial Management in Thousand Oaks, California. “The data has been very consistent from year to year, particularly when it comes to donor motivation.”

“Taxes are a nice side benefit, and sometimes taxes can be the catalyst for a larger discussion of charitable goals, but taxes are not a primary reason why people give,” Ros said.

There’s a stronger interest in philanthropy among millennials and Gen X, according to the report, which polled cross-generational investors throughout the country. 

Nearly three-quarters of high-net-worth millennials and 8 in 10 Gen X investors have a charitable giving strategy, according to the report.

“The younger generations are more charitably inclined, and they care more about impact,” said David Foster, a CFP and founder of Gateway Wealth Management in St. Louis. “They don’t have much money yet relative to the older generations, but, when they do, the giving landscape is going to look very different.”

What’s more, younger wealthy investors are more likely to seek advisors who share their values, he said. “Their money and their values are inextricably linked in a way that your older client’s money and values are not.”  

Indeed, while 62% of those surveyed agreed it was “important” for their wealth advisor to understand their values, with higher percentages among millennials, Gen X and investors with at least $25 million in wealth.

The report also shows a shift in donations over the past couple of years, with the majority of high-net-worth investors giving more since the pandemic began.

However, it’s difficult to predict if the uptick will continue, as charitable giving is highly correlated with the stock market, according to Giving USA, which has tracked U.S. philanthropy for more than 60 years.

Still, experts feel optimistic about the future of giving.

“The U.S. has always been a generous country, and philanthropy is part of our cultural DNA,” Ros from Forum Financial Management said.