Raising the Charitable Giving Question

The Advisor's Role in Philanthropy

Asking a client about philanthropy may seem daunting, but it is an important part of providing complete financial planning and professional advice to your clients. For a host of reasons, any informed advisor should be prepared to talk with clients about charity.

• Many clients are already in the habit of supporting charity.

  Americans gave more than $212 billion to charity in 2001, according to Giving USA, 75% of it from living donors. In 1999, a national survey by the nonprofit group Independent Sector showed that 70% of American households give to charity each year. That percentage may be even higher among the wealthy. A 2000 Dallas Foundation survey of wealthy people in Dallas found that 90% of those surveyed had contributed to charity in the previous year. Incorporating charity into the planning process is a natural reflection of most clients' existing habits and values.

• For clients with substantial estates, minimizing or eliminating estate taxes is difficult to do without some charitable planning.

  The phased repeal of the estate tax is likely to change again before 2010, so the tax cannot be entirely discounted in planning. Regardless of the status of the estate tax, charitable planning offers tax advantages in many other situations, such as the sale of highly appreciated stock and dispositions of retirement accounts on death.

• Philanthropy can help resolve many personal issues that are deeply important to clients.

  Beyond its practical uses, philanthropy can help clients answer questions such as: How can I feel that the world is better for my having been here? How can I raise children with good values? How can I balance the moral demands of my conscience or religious beliefs with my material wealth? And many professional advisors find that assisting clients in this area is personally rewarding as well, because they struggle with the same issues.

Some professional advisors hesitate to ask clients about charitable giving because of a number of misperceptions:

• "Asking the question is too intrusive. It's none of my business."

• "I might damage the relationship if I ask."

• "I don't know enough about philanthropy to start the conversation."

• "I would have to 'sell' the client on a particular charity."

• "My client won't be interested unless there are large tax savings."

• "A charitable gift will interfere with my client's goal of providing for his family."

But recent studies of donors and their professional advisors by The Philanthropic Initiative of Boston, as well as charities' extensive experience with donors, have shown just the opposite:

• Clients want help with their philanthropy and wish their advisors knew more.

• Good charitable advice strengthens the client relationship by providing better service to the client and generating greater client loyalty.

• Clients expect referrals to experts in charity, just as they would with other specialties like accounting or law.

• When considering charitable gifts, clients are generally cause-driven first, tax-driven second (although men are more motivated by tax savings than women, and tax savings do affect the size of gifts).

• High-quality charitable planning can meet multiple goals, and can result in a larger benefit to family members.

To an experienced professional advisor, many common client situations are appropriate for raising the charitable question and considering a community foundation. Beyond the obvious indicators of the financial capacity to make a gift, here are a few situations to watch for.

• Philanthropic Interests
  • Your client has contributed regularly to charity through annual giving.

  • A particular charity, such as a hospital or university, has had a significant positive impact on your client or a family member.

  • A particular issue, such as heart disease, has had a significant negative impact on your client or a family member.

  • Your client gives regularly to her church, temple, or other house of worship.
  
  
• Family circumstances
  • Your client is unmarried.

  • Your client does not have any children.

  • Your client has children who are financially independent adults.

  • Your client would like to memorialize a loved one, such as a deceased child.

  • Your client is recently divorced and is looking for new interests.
  
  
• Concern for self or others
  • Your client wants to provide steady source of income for herself or a family member.

  • Your client expresses concern about "ruining" his children with too large an inheritance.

  • Your client is philanthropic and wants to teach other family members about philanthropy.
  
  
• Financial Circumstances
  • Your client has low-basis capital gain assets that have increased greatly in value.

  • Your client is concerned about personal assets that are generating little or no income.

  • Your client experiences a financial windfall, such as a bonus, late in the tax year.

  • Your client holds a significant amount of assets in a retirement account.

  • Your client owns a small business that she would like to pass to her children.

  • Your client's wealth is self-made.
  
  
• Property Sales
  • Your client is seeking to sell appreciated property.

  • Your client has real estate that produces little or no income.

  • Your client is considering taking a closely held company public.
  
  
• Personal Beliefs
  • Your client is interested in channeling money away from the government through taxes and putting it to another use that better reflects his values.

  • Your client feels an obligation to repay society or his community for the benefits he has received.

  • Your client struggles with her conscience over issues related to wealth.

  • Your client has strong religious beliefs.

There is no single, "right" way to raise the charitable question with clients. And if the client does not respond, or responds unfavorably, the advisor can simply drop the matter.

To ensure that you are meeting your client's philanthropic interests, consider incorporating some of the questions listed below in your normal planning with clients:

• Do you currently support any charitable organizations, including your [church, temple, other house of worship, or alma mater] either by volunteering or by giving financially?

• Are you interested in supporting those organizations in any way after your death?

• Have you ever thought about what kind of personal legacy you want to leave?

• If there were a way to significantly reduce your income or estate taxes that involved a charitable gift, would you be interested in hearing more about that?

• If there were a way to leave more to your family by making a charitable gift, would you be interested in hearing more about that?

• Do you think your kids would mind if you left 5% of your estate to charity? Would your answer be any different if your kids could be involved in some way?

• How much money do you think a parent can leave to a child without harming the child's future? Two million dollars? Five million dollars? If your estate proves larger than that, would you want to consider a charitable gift with the excess?

• What if your spouse and children do not survive you? What would you want to do then? Would you prefer to have all or part of your assets pass to charity rather than to distant family members?

• Would you consider arranging for your retirement accounts to pass to charity as a tax-planning strategy?

• If someone with expertise in this area could help you identify some charities that are worthy of your support, would you be interested in exploring a charitable gift?

• If you had to give away $100,000 by the end of today, is there any group of people, such as needy children, that you would want to help?

• What cause would you like to be known for caring about and supporting?