Presentation Scheduled for Wednesday, 1:15-2:15 pm
Pending CE: 1 CFP, 1 NASBA/CPE, 1 MN insurance, 1 WI insurance, 1 CIMA, 1 CLE Standard
Your clients already have charitable interests, passions, and the desire to create change and make the world a better place. As their financial advisor, you know that when done right charitable giving can also benefit your clients by reducing income taxes and avoiding capital gains taxes. But while reducing taxes is a great benefit of charitable giving, it is rarely the primary factor in a client’s decision to give back.
Many advisors feel that discussing charitable giving with clients is too “personal”, or that they are not qualified to dig deeper into their clients’ motivations for giving. As a result, advisors may be missing opportunities to build deeper relationships, including multi‑generational connections that can expand the scope of a client engagement. In the extreme, advisors may even miss signals that could affect a client’s entire financial plan. For example, a typical estate planning conversation may start from an assumption that a client’s goal is to pass the “max after tax” to their descendants. For clients with strong charitable motivation, making more significant charitable gifts during their lifetimes or at death may take priority, even if estate taxes are not a concern.
Once you understand a client’s reasons for giving back, and the types of charitable gifts that are truly meaningful to them, you can begin to apply charitable planning techniques that can increase the impact of a client’s gift while also amplifying the tax benefits. As with all aspects of planning, it is important not to let the technique drive the plan, and to always understand the “Why” of a gift before implementing the “How”.
Here are some examples of tax‑favored charitable gifts, from a few simple options to some more complex techniques:
- A cash gift can be made by check or credit card. This method of giving is simple for clients and is deductible for income tax purposes.
- Giving appreciated stock to charity is easy and has an added tax benefit:your clients receive an income tax deduction for the fair market value of the stock, and they do not pay income tax on capital gains associated with its sale.
- By creating a Donor Advised Fund a client can get a current tax deduction and recommend grants to charities from the fund in future years and even over multiple generations. Donor Advised Funds are especially suited to donors in high income years or with significantly appreciated stock positions.
- Clients’ tax-deferred retirement accounts are subject to both income tax and, to the extent there remains a balance in the account at death, estate tax. Clients can name charitable organizations as a beneficiary of some or all of a retirement account, avoid both taxes, and benefit charity. The client simply requests a beneficiary designation change form from the retirement account custodian.
- Your clients can also leave a gift to charity at death under their estate plan. An attorney can help craft language for a will or revocable trust that will accomplish the gift during the estate or trust administration process.
- If clients want to make a charitable gift now but retain an income stream, they might consider a charitable gift annuity or a charitable remainder trust. Both of these techniques can provide income to a client during their lifetimes, generate a current income tax deduction, and provide a benefit to charity in the future.
For any type of charitable gift, comprehending a client’s motivation for giving will inform the choice of vehicle, its timing, and the assets used. In our session at the FPA Symposium on November 4, “What Gives: The What, When, and How of Giving,” we will dive deeper into discovering a client’s charitable “Why”, and discuss how to apply this understanding through real world examples of transformational gifts that have changed lives for the better.