Financial Advisers and Planned Giving: Doing the Right Thing

By Phyllis Bernstein

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JUNE 2005 - 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.

There 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 issues.


In 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.

In 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.

Stories 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.

Do Estate Taxes Matter?

Estate-tax 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.

Importance of the Relationship

In 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.

The 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.

Cooper 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.

The 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.

Donor-Advised Funds and Planned Gifts

Donor-advised 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.

There 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.

To 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.

Another 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.

Individuals 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.

Taking the First Step

The 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.
  • Let 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.

Phyllis Bernstein, CPA, is president of Phyllis Bernstein Consulting, Inc., New York, N.Y. She can be contacted at or




















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