Benefactor

DEFINITION of '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.

In literary precision, a female benefactor is called a benefactress.

BREAKING DOWN 'Benefactor'

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.

In some cases, very wealthy individuals start their own charities using their own money. While a rare occurrence, 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.