Benefactor

What Is a Benefactor?

A benefactor is an individual that provides money or other resources to an individual, group, or organization. A benefactor typically refers to someone who gives financial gifts to an entity known as the beneficiary. Older usage will sometimes refer to a female benefactor as a benefactress.

Benefactor is a Latin load word to English that literally translated means "one who does good" or "one who does good deeds." Benefactors are people in the position of being able to do good deeds by giving money without an expectation of recompensation, so benefactors are usually older, wealthy individuals who seek to do good by giving their money to younger people in need, charities and non-profit institutions.

How a Benefactor Works

Benefactors may have several reasons to give away their money, time, and other resources. It is common for individuals to help specific individuals and organizations that they care about. The resources provided are referred to as patronage.

Being a benefactor does not require an individual to be wealthy, though the term is most frequently associated with large financial gifts to charities and university endowments. There is a wide array of ways that individuals can help others out financially. Depending on the approach taken, a benefactor may be able to claim donations and gifts on his or her taxes, resulting in a reduction in the overall tax bill.

A passive option is to have funds automatically sent to a designated beneficiary at a given point in time. For example, a life insurance policy allows the policyholder to designate one or more individuals who will receive the proceeds when the policyholder dies. This approach can also be used with retirement accounts, such as a 401(k). The beneficiaries may be individuals or family members, but can also include charities or endowments.

Parents who help their children financially are also considered benefactors. For example, parents may help pay for college expenses or may help pay for the rent of a recent college graduate. In both cases, the parent is helping through financial gifts, even though the child is not considered a charity.

Donations, whether to a charity, endowment, or other nonprofit, are the most commonly associated activity with benefactors. Such donations do not have to be made when the benefactor has died. Because donations to third-parties can be written off of one’s taxes, they are typically factored into the benefactor’s financial and estate planning. They are also considered a more active approach, as the benefactor has sought out causes that carry enough meaning to prompt financial support. For example, a benefactor may send a fixed amount of money to a religious organization each year or may provide funds to a local school.

Real World Examples of Benefactors at Work

Charitable Foundations Created by a Benefactor

In some cases, very wealthy individuals start their own charities using their own money. This approach can provide the benefactor with a greater say when it comes to how donations are used. These types of organizations often focus on a specific range of focus, such as alleviating hunger or improving education.

Some of the biggest charitable foundations are associated with a single benefactor. These include the Bill & Melinda Gates Foundation, the Open Society Foundations, and the Ford Foundation.

The Bill & Melinda Gates Foundation was originally called the William H. Gates Foundation and was founded by Gates in 1994. It has an endowment of $46.8 billion. In 2006, billionaire investor Warren Buffett gifted the foundation 10 million Bershire Hathaway B shares to be distributed every July in increments of 500,000 shares. As a benefactor of the foundation, Buffett has donated $27.3 billion as of 2019.

The Open Society Foundations was created by a gift from the famous hedge fund manager and currency trader George Soros. According to the Open Society Foundations website, Soros has gifted over $32 billion of his personal fortune to the foundation.

The Ford Foundation was created in 1936 by Edsel Ford, son of Henry Ford, the founder of the Ford Motor Company. Edsel Ford created the foundation to receive and administer funds for "scientific, educational and charitable purposes, all for the public welfare.” Edsel gave an initial gift of $25,000, which is roughly $465,000 in 2020 dollars.

Benefactors to Universities

Benefactors have been key to the continuing work of universities since Holy Roman Emperor Frederick I Barbarossa signed the Authentica Habita, also known as the Privilegium Scholasticum in 1155 A.D. Through the Middle Ages and the Early Modern Period, benefactors donated books from their libraries, but in the modern age, benefactors have historically given cash.

American industrialists of the 18th and 19th centuries sometimes created new universities with a new endowment of cash, for example Ezra Cornell who endowed Cornell University with a gift of $500,000 in 1865.

The largest single contribution to a university came from Michael Bloomberg who announced a gift of $1.8 billion to John Hopkins University in 2018. That gift for scholarships to low-income students comes on top of $1.5 billion he has donated to the school previously.