The charitable giving conversation

  • Author : Betsy Brill
  • Author : Ken Nopar
  • Date : May 2011
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ABOUT THE AUTHORS: Betsy Brill is President and Ken Nopar is Director, Market Development of Strategic Philanthropy, Ltd

P hilanthropic planning, as an integral aspect of many professional advisory practices, and as a professional service in its own right, is no longer unique in the United States. This is not just driven by a tax code that encourages and acknowledges charitable giving as a tax offset but because Americans have historically been charitably inclined (giving over USD300 billion in 2010) and despite the economy, continue to maintain a high level of giving to global and domestic issues.

Outside the United States, the philanthropic landscape is also changing. It has begun to move away from the province of companies and select high-net-worth individuals to a more visible activity across generational and economic strata. In part, this is because of the challenging global economic environment but it is also because of a growing awareness of the importance of responding to community and global needs in ways that will have measurable and focused impact. Just as individuals are concerned about responsibly managing their financial portfolios and ensuring that their estate plans are current and relevant, they are recognising the value of being more thoughtful and strategic about their charitable giving. With proper planning, the money and other assets that donors give to their favourite charities (NGOs) can provide them with a great sense of satisfaction, pride and accomplishment. A lack of adequate planning, on the other hand, can often lead to disappointment, frustration and family friction.

All of this presents a significant opportunity for legal and financial advisors. Banking institutions already see philanthropic planning as a business opportunity and are integrating it into their service offerings. But legal and financial advisors are uniquely positioned to address the charitable intent of their clients in an even more robust manner because of the scope and nature of their work. Not only can this benefit your clients because it helps focus their thinking about their philanthropic investments but it can enhance and expand your practice, build stronger and more meaningful relationships with current clients as well as the next generation.

Introducing the conversation

It is important to remember that clients appreciate it when you express an interest in them outside of the specific legal or financial matter(s) under discussion. Raising the question of charitable intent is a starting point. By asking a few initial questions regarding the client’s charitable interests, opportunities and strategy and how or whether they want to involve the next generation in their charitable activities, advisors are more prepared to effectively assist their clients. Many wealth creators in the US have followed Warren Buffett’s lead and begun to limit the amount that they leave their children. Ensuring that this decision is clearly articulated helps both generations. It is also valuable information as you define the various charitable vehicle options and opens the door to broader discussions.

Karen D Neal, Managing Director of the Family Office Exchange US says: ‘For families that have sold their operating business, philanthropy often serves a key role in providing continuity from one generation to the next. We’ve found that philanthropy is a way for family members to become engaged, and can be a critical ingredient in the glue that keeps families together.’

Because many clients may currently or potentially be in a situation to be substantial donors, this conversation needs to take place with nearly everyone: the parents who want to limit the money their children will inherit, the couple who do not have children, the individual who will never marry, the client who will inherit wealth, the entrepreneur who will sell his or her business, the corporate executive who will retire in the near future, the young professional who is earning a large income… all of these individuals need advice and counsel around their charitable planning and many do not know where to begin. Introducing the conversation therefore falls to the advisor who is in a trusted and responsible role.

In order to help clients determine the best course of action, advisors should first look at the clients’ giving history. Questions to ask include:

  • What have been the main reasons that the client has donated money or assets in the past?
  • Which donations have provided the most satisfaction or cause for concern, and why?
  • Have the NGOs and the causes that the clients have supported always been the same or have they changed over time?
  • Has the amount given away been consistent or has it increased or decreased?

Once the clients’ giving history and current situation have been established, some of the topics that can help advisors determine the best charitable vehicle include:

Timeline for giving

When do the clients want to donate their money or assets? Do they want to give away their money during their lifetimes, after their deaths, or both? If leaving all or some of their money to be distributed to charities after their deaths, do they want the giving to continue in perpetuity or should there be a limited time frame for distribution?

Many donors believe that they should fund the causes that are most important to them while they are alive because of their urgency. Others may want to determine which causes and organisations to fund after death while they are still alive so that there is a clearly defined path for their successors or trustees to follow. It is important that donor intent is carefully and thoroughly articulated for both the donors and the organisations they fund. (It is very difficult to rule from the grave!) This will mitigate the challenges that executors, trustees, and heirs face while trying to decipher the unstated or unclear wishes of the deceased.

Most trusts and foundations in the US and abroad are still established in perpetuity; however, there is a growing trend toward time-limited giving that acknowledges and responds to the immediacy of societal problems. Time-limited charitable giving vehicles allow donors to balance a desire for immediate impact with the opportunity to create a family legacy.

‘Too often the execution of the documents creating a vehicle to support or manage the charitable giving is viewed as the final piece of the process, when in fact it is near the beginning. We need to do justice to the process and the intent associated with the entity establishment. The real work and benefit starts on the day the entity springs into being. In my experience, there is significant risk that clients are leaving the lawyer’s office without sufficient instructions on how/when to proceed,’ said Sarah Kerr Severson, a Partner in the US law firm of Schiff Hardin LLP.

Sources and amounts of funds

Charitable giving is not limited to money. Non-cash assets such as company stock, real estate, or artwork may also be donated, but it is important to determine the value and benefit of this form of giving for both the NGO and the donor. The amount and types of assets to be donated initially, during lifetime, and at the death of the creator will also help to determine which vehicle is best. One of the key questions to discuss with clients is what and how much will be left for the heirs of the client vs how much will be left to NGOs.

Pamela Lucina, Managing Director, Wealth Advisory for JPMorgan, points out that, ‘No matter the size of the estate, we run forecasting modules to assure clients that they can set aside an amount for charitable giving without interfering with their other goals for themselves and their family members. We conduct analysis and identify the surplus amount that would be there even in the weakest of markets.’

Who will be involved and do the work?

It is important to determine whether the donors want to do all of the work themselves or enlist others to do the work. Do the clients know how to develop a mission, identify the causes that are most important to them and their family, and the most effective organisations addressing those causes? Do they want to manage the specifics of the charitable giving such as sending out requests for proposals, interacting with potential grantees on an initial and ongoing basis? Are they interested and willing to determine how a grant can have the most impact within a recipient organisation, and evaluate the impact of donations or grants? Some donors are capable of doing much of the work themselves, but at least initially and often beyond, many prefer to have experts involved, particularly if they do not have the expertise, time or interest in the details. This way, they can focus on those aspects that provide them with the greatest satisfaction and reward.

Increasingly, philanthropic advisors are included in the discussion because they add value to the legal and financial advisors’ work. The combination of experience and analytical rigour that philanthropic advisors bring to their work allows clients to feel that their charitable dollars are being invested wisely.

Legacy

It is important for many donors to lead by example and to create and leave a charitable legacy that others can follow. Many donors involve their children to demonstrate the importance that giving back to society plays in their lives. Regardless of vehicle, donors who include their heirs in discussions and decisions are far more likely to have their charitable intent followed after their death.

The more you know the more your clients will know

There are many resources available for advisors who want to garner a greater understanding of how to integrate the philanthropic discussion into their practice. For additional information and resources, The Charitable Planning Desk Reference for Advisors is one place to start and is available at www.stratphilanthropy.com

Conclusion

We have only touched on a few of the reasons it is important for advisors to discuss charitable intent with their clients. But perhaps the most important consideration is that it is beneficial for the clients. It is also a valuable avenue to pursue for advisors because it can lead to additional business, deeper and longer relationships with clients and their heirs, and pride in knowing that they have helped clients begin to successfully execute their charitable plans. If every advisor were to engage their clients in a discussion on charitable intent and opportunity, the impact throughout the world will be significant.


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