Often, success motivates us to give back to the world in a positive way. You may have a cause in mind that you want to support, or you may be looking for just the right fit. In either case, you want to be sure that the organization(s) you choose to support are legitimate and set up to effectively achieve stated goals.
Defining Your Charitable Giving Goals
When choosing a cause to support, think about who you are and what kind of impact you want to make. You may be influenced by beliefs, personal experiences, or knowledge of local or global challenges. For example, you may want to donate to medical research on a disease that has affected loved ones. If you are excited by the potential of young people, scholarships for first-generation college students may be a good avenue for support. If your community has been affected by a natural disaster, you may want to help your neighbors. Take stock of your passions, too. What about nature conservation or the symphony?
Once you have a cause in mind and you’re looking for the right organizations, identify and define the goals of your support. Are these organizations working toward specific goals that align with the goals you just defined? Do you feel good about the path they are taking toward these goals? Do you think your support can truly make a difference for them and the people they serve?
Key Criteria to Evaluate Charitable Organizations
Finding an organization aligned with your general goals is only the first step. If you’re planning to donate a substantial amount to any organization, you want to be sure they also embody your values, are doing what they promise, and operate with as little waste as possible.
Mission and Impact
Start with the organization’s mission statement and read it carefully. Does the purpose of the organization match up with your own goals? Do their objectives, and the way they intend to accomplish them, align with your values? If you can support the mission and feel passionate about the cause, you can continue your research into the organization.
Leadership and Governance
Just as with any for-profit business, the success of a charitable organization depends on having good leadership and governance. Who makes the strategic decisions? Who runs the day-to-day operations? What prior experience do they have, and how do their recent decisions seem to be impacting the performance of the organization? In short, do the people running the show seem to know what they’re doing, and are you comfortable entrusting them with your money?
Transparency and Accountability
Transparency and accountability are important. You want to make sure your money can have the greatest impact. Charitable organizations should provide open access to the information you need to assess their operations, including how much money they take in, how they use their resources, and their financial health. Do they share information freely on the projects they are currently involved in and what they have accomplished so far? Do they take responsibility for their actions and outcomes, conduct regular audits of their operations, and communicate regularly with their stakeholders?
Financial Efficiency
Good intentions should not be enough to earn your support. You want to know that your money is being used wisely and efficiently. Is most of their money going into critical projects, or is too large a percentage being spent on administrative costs? Does there seem to be a lot of waste in their budget, or are they running a tight ship?
Conducting Due Diligence on Potential Charitable Partners
Answering all of those questions is the process of due diligence. You wouldn’t buy a large stake in a business without checking it out first, and you will want to put the same effort into vetting the best charitable organizations to receive your donations. There are several ways to do this.
Public Disclosure
Tax-exempt nonprofits are subject to strict public disclosure laws. They are required, on request, to provide copies of the three most recently filed annual information returns (IRS Form 990 or related applicable form) and the organization’s application for tax exemption. These provide a lot of current information. Copies of IRS 990, 990-PF, 990-EZ, 990-N, and 990-T returns for charitable nonprofits are available on the IRS website. For convenience and to demonstrate a commitment to transparency, many charitable nonprofits also post these documents on their websites.
Third-party Evaluation Tools and Charitable Organization Ratings
You can also research organizations using reputable third parties that evaluate nonprofits. These resources include:
Please Note: The information being provided is strictly as a courtesy. When you link to any of the websites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information or programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the website to which you are linking.
Whether you’re looking in your neighborhood or searching globally, these resources provide charitable organization ratings that can help you choose wisely.
Meet with the Organization
Of course, when possible, meeting with the people running the organizations you’re considering supporting can be very informative. If you have this opportunity—whether in person, by phone, or via video conference—be sure to have your list of questions ready and know what you want to accomplish through the conversation.
Mitigating Risks in Charitable Giving – Addressing Potential Red Flags
The goal of due diligence is to discover potential red flags and address them before you put your resources at risk. Potential indicators of issues include:
- Lack of willingness to disclose financial or other information about the charity.
- Signs of financial instability.
- Insistence on donations being structured in a particular—perhaps unusual—way.
- Lack of charitable organization ratings by reputable third-party evaluators.
- Lack of reputation or a questionable reputation among the philanthropic community.
- Lack of third-party verification of results. (Pretty photos of completed projects are not enough.)
- Questionable connections with political figures in the U.S. or overseas.
- Inability to verify banking information.
- Lack of rigorous internal policies to reveal and prevent conflicts of interest.
- Something seeming too good to be true.
Help Safeguard Your Legacy
Values are among the most important things you can pass on to your heirs. Charitable giving can help you establish a lasting legacy that reflects your values, sets an example for your family and, when properly established, can provide a structure for philanthropy spanning well beyond your lifetime. That’s why choosing the best philanthropic organizations for your support is a critical decision that can safeguard your legacy and expand your impact across generations.
A knowledgeable financial advisor can help you select the right philanthropic opportunities and structure your giving to optimize advantages for you and your chosen organization.
To be matched with a financial advisor you can trust to help you work toward your goals with customized planning, take advantage of our advisor matching program today.
Tom Fridrick is a non-registered affiliate of Cetera Advisor Networks, LLC.
This article is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
