There’s a common assumption by many that the super-wealthy donate to charities so they can reduce their tax obligations, thereby benefiting financially. While this is one reason they might share their wealth with others, the truth is that many ultra-high-net-worth (UHNW) individuals are motivated to donate their money for more altruistic reasons. In other words, they’re not necessarily always driven by the desire to benefit personally by saving on taxes. Read on to learn the real reasons why a large majority of ultra-wealthy individuals give funds to charitable organizations.
Personal satisfaction – Studies have shown that many wealthy people gain a deep sense of fulfillment when they use their money to bring about positive change. This has led to a surge in philanthropy among millennials and members of Generation X, in particular, who have often turned away from traditional forms of charity based on religious motivations, opting instead for giving circles that emphasize making an impact through donations, investments, and other strategies. In fact, according to BNY Mellon Wealth Management’s 2022 Charitable Giving Study, this demographic has also been found to prefer and seek out financial advisors who share their charitable values. The personal satisfaction gained from giving one's wealth away clearly resonates deeply with many modern donors across all age groups.
A sense of duty – Ultra-wealthy individuals are uniquely positioned to make an outsized impact on their communities and the world at large. As such, they often feel a sense of duty to use their abundance for good. While philanthropy is not always motivated by a sense of responsibility towards others, when it comes to those with the greatest levels of wealth, this belief often serves as a primary motivating factor. Whether via charitable foundations or direct donations to worthy causes, those with wealth can find immense satisfaction in the knowledge that their money is causing change. In some cases, part of that drive may well come from a realization that real social change needs more than wishful thinking – it requires financial resources.
Connection to a cause – UHNW individuals often have the ability to donate millions or even billions of dollars to many different causes. One of the primary reasons for this type of charitable giving is the strong connection these individuals might have to a particular cause – from animal welfare or healthcare to environmental protection or education initiatives. Often, these wealthy individuals have had a personal experience with the cause that drives them to give back in a big way. Furthermore, donating their resources to make an impact can also act as an incentive for other high-net-worth people to do the same. Ultimately, donations made by those with large bank accounts can truly make a difference.
Finally, we would be remiss not to include tax benefits on the list of reasons why the ultra-wealthy donate their money. While this isn’t always the primary reason – as discussed above – it shouldn’t be overlooked that charitable giving can indeed provide UHNW individuals with potentially significant tax savings. Between federal and state taxes, donating can often effectively reduce taxable income by a huge margin while deferring possible capital gains taxation and reducing estate taxes. Therefore, it's no wonder many ultra-wealthy individuals choose to make generous donations to save on their taxes.
The ultra-wealthy can clearly benefit in multiple ways from charitable giving, but it should be noted that it’s not always for financial reasons. In many cases, they donate generously to causes near to their heart because they truly desire to make a positive impact on the world. While saving on taxes is a nice perk, it isn’t generally the only reason UHNW individuals choose to share their wealth.