Advisers and Planned Giving: Doing the Right Thing
- High-net-worth individuals have been scrambling to find
ways to donate funds to charity without the problems and setup
costs of traditional charitable planning vehicles. With the
generational transfer of wealth over the next 50 years estimated
at $40 trillion to $130 trillion, now is the ideal time to
start thinking about philanthropic planned giving.
was initial concern that the recent reductions in the capital
gain tax rate would lead to less charitable-giving. From
an economic point of view, this could prove be true. On
the other hand, giving is important to people. Attitudes
toward philanthropic giving do not appear to have changed
much. Charitable giving is a matter of charitable intent
and financial strategy. Individuals intent on creating value
for themselves through charitable giving will often seek,
appreciate, and reward appropriate advice on complex philanthropic
a true story of philanthropic motivation, a hard-working
farmer, with a frugal lifestyle and a knack for investments,
bequeathed his $16 million estate to a $3 million foundation.
The 94-year-old man had never married and had lived frugally
for 75 years on his 50-acre farm, where he rented out a
number of small homes and cottages. He left the proceeds
from the sale of his farm, as well as an investment portfolio
worth about $6 million, to the organization. He never made
contributions to the organization before, and had to look
up its phone number. The organization wishes it could say
that it cultivated the donor or that the donor understood
and supported its work, but the truth is that the gift was
donor-driven. The organization did not plan for the gift,
but was thankful for receiving it.
another true story, a headline in the Chronicle of Philanthropy
read: “Brown U. Receives $100-Million From Businessman.”
Billionaire Sidney E. Frank donated $100 million to endow
an undergraduate scholarship fund. It was Frank’s
second gift to Brown University in three months; he had
already donated $20 million to build an academic center.
“Previously, however, Mr. Frank … had barely
given the university any money: [h]is only other donation
on record was $100 to the university’s annual fund
in 1977,” the article noted. No prior history indicated
that such gifts were coming.
like these are endless. The Independent Sector conducted
a national study of more than 4,000 adults that measured
the everyday generosity of Americans. According to this
study, 89% of households make charitable gifts; the average
annual household contribution is $1,620.
Estate Taxes Matter?
avoidance is considered a major motivator of charitable
bequests. Estate taxes start people thinking about charitable
giving. Often, individuals with sufficient assets to raise
estate-tax issues talk to a financial advisor, lawyer, or
CPA about their tax concerns without raising the question
of charitable contributions. It is likely that many of these
individuals would like to pursue charitable bequests but
need to have the options presented to them. Even if estate
planning triggers charitable planning, the primary reason
people make charitable bequests remains charitable motivation.
of the Relationship
another true story, the Jewish Federation of Central New
Jersey recently received a $70,000 bequest from a woman
with virtually no previous relationship with the organization.
Her second husband had a vacation bungalow in the community;
she lived with him for seven years before his death.
husband was charitably inclined, but had no ideas about
which organizations to support. Because the man lived in
the community and was Jewish, his attorney suggested leaving
a portion of his estate to the Federation. Amy Cooper, director
of financial resource development for the Federation, had
never met the man. When he died, the attorney notified her
that the Federation was in his will, but that his assets
had gone to his surviving spouse.
began a relationship with her. When she moved, Cooper stayed
in touch. Cooper visited her when she was in New Jersey,
and called around the holidays. The conversations always
ended with her telling Cooper that she had kept the Federation
in the will. She honored her promise, and the Federation
received the bequest as a distribution from her estate.
The attorney who originally suggested the gift, in response
to the husband’s desire to give, attributes the eventual
bequest to the warmth of the relationship that Cooper established
with the spouse.
seven faces of philanthropy. In The Seven
Faces of Philanthropy: A New Approach to Cultivating Major
Donors (Jossey-Bass, 2001), authors Russ Alan Prince
and Karen Maru File discuss how to communicate about value
in a way that fits an individual’s philanthropic personality.
The book identifies and simplifies giving patterns and motivations.
The seven “faces” are:
Communitarian: Doing good makes sense.
Devout: Doing good is God’s will.
Investor: Doing good is good business.
Socialite: Doing good is fun.
Altruist: Doing good feels right.
Repayer: Doing good in return.
Dynast: Doing good is a family tradition.
Funds and Planned Gifts
funds, developed by many financial service firms, such as
the Fidelity Charitable Gift Fund and the T. Rowe Price
Program for Charitable Giving, have opened new opportunities
for funding planned charitable giving. Compared to private
foundations, donor-advised funds are simple, inexpensive,
and more flexible. Despite the increased visibility of such
funds and other planned giving tools, however, most charitable
donations are not channeled through these funds or through
private foundations, but through other means.
is plenty of opportunity for individuals to learn about
their charitable interests and have them focus on the simplest
and most popular form of planned gift, the bequest. The
distinct advantage of bequests over other gifts is that
they are conceptually similar to making a gift through a
will. Furthermore, people are often more comfortable discussing
how to make significant gifts at death, rather than during
life, particularly when the costs of health-care and long-term
care are so uncertain.
test the waters, one might make a relatively small life-income
gift, to evaluate an organization’s ability to manage
it. For example, a small charitable gift annuity can lead
to future gift annuities of greater amounts if the donor
is satisfied with the organization’s management. People
that make a bequest to a favorite charity are unlikely to
remove it, even when updating their estate plans. They often
consider the gift complete, even though it is revocable.
factor that encourages people to give to charity is responding
adequately to their questions. Planned giving directors
or development directors can also thank or secure bequest
donors through personal visits and donor recognition events,
which can lead to discussing the benefits of life-income
gifts. This can be particularly attractive when a donor
has earmarked highly appreciated, low-income stock or real
estate for donation to an organization.
converting a bequest to a life-income gift will obtain significant
tax and income benefits by making a revocable commitment
into an irrevocable gift. Often, retired individuals who
live modestly have assets that, upon conversion to such
a gift, can significantly strengthen an organization, while
providing the individual with significant income.
the First Step
following is what a financial advisor can do to better serve
clients interested in charitable giving:
Join an organization’s professional advisory committee
to learn from peers about charitable giving. Some charitable
organizations sponsor seminars that fulfill professional
education requirements and feature informative sessions.
Think about what makes people charitably inclined. This
will help in discussions about giving to charity. It is
possible that an advisor’s motivations may be similar
to those of the client.
potential donors dream out loud about what is important
to them and why. If advisors listen closely, they will
learn whether their clients are charitably inclined and
what they can do to help.
Bernstein, CPA, is president of Phyllis Bernstein Consulting,
Inc., New York, N.Y. She can be contacted at firstname.lastname@example.org