Charitable giving can be a personal, if not touchy, subject both for advisors and their clients. In 2000, the nonprofit consulting group The Philanthropic Initiative (TPI) did a national survey of advisor behavior and its effect on donors. It found that 90% of financial and legal advisors ask their clients about charitable giving, but only half consistently ask "the philanthropic question" to all their high-net-worth clients.

The quotation marks are theirs, as if philanthropy is the "P" word in financial planning. The question in question boils down to this: "Have you thought about philanthropy as part of your wealth management plan?"

According to TPI's 2000 survey, and this year's follow-up study of California financial and legal advisors, the topic of philanthropy often is broached from the standpoint of tax savings and overall estate planning. But the latter study shows that only 7% use an approach based on legacy planning or values and goals to ascertain charitable intent and desires.

"Some financial professionals feel that delving into a client's values and personal feelings is too intimate," says Steve Johnson, a vice president at Boston-based TPI. Others are wary of imposing their value judgments on clients.

Then there are those advisors who believe exploring the heart and psyche of investors regarding philanthropy is both emotionally and professionally rewarding. "I look at philanthropy as a tool that differentiates myself from the competition and is a good service for the client," says Andy Horowitz, president of The Estate Management Group, a wealth management firm in Valencia, Calif.

Much has been written about the so-called intergenerational wealth transfer from older to younger Americans, which forecasts a collective $41 trillion inheritance passed down nationwide over the next half-century. Of that, at least $6 trillion is expected to go to charity. For many financial advisors, philanthropy-based planning to help wealthy clients meet various wealth management and personal goals can be a golden opportunity to forge intergenerational ties with a client's family by forming close bonds beyond the patriarch (or matriarch) generation.

Horowitz is a certified philanthropic developer, a designation for specialists in charitable tax planning. The 250 clients at his firm have assets ranging from $1 million to $50 million, and he makes it clear to them that a lot of their money will eventually go to Uncle Sam or insurance premiums to cover taxes or as gifts. "It's a real eye opener for them when they realize that millions of their dollars could go to taxes rather than where they'd like it to go," he says.

Horowitz likes to go on retreats with clients to gauge what they'd like to accomplish with their fortunes. He'll typically meet with them at golf or tennis resorts, or maybe a relaxed setting like watching the boats at Newport Beach. He met one couple on Catalina Island, where they said they'd like their two sons to understand the responsibility that comes with wealth. After the woman died, Horowitz met with the twenty-something children and their father, who made $50 million in real estate.

"I asked the kids what's the one thing they would change in this world if they could," says Horowitz. "Then I shut up and let them speak." What came out of the conversation was that one son wanted to cure cancer because that's what caused his mother's death. The other son said he'd like to promote education of the arts.

Then Horowitz summarized their conclusions by saying it sounded like they were talking about developing a foundation to improve the quality of life and to educate people. They agreed. Horowitz then said it sounded like the beginnings of a mission statement, and asked them how they would make that happen. The family dug deeper into their thoughts and into the logistics of starting a family foundation.

"We developed a family mission statement," Horowitz explains. "We found specific organizations they want to get behind, and then developed grant-making guidelines."

Family or private foundations were traditionally the domain of the super rich because prohibitive set-up and maintenance costs made them not feasible unless a donor had at least several million dollars. But streamlined private foundation programs from the likes of Fidelity Investments and Foundation Source dramatically lowered the costs of creating and maintaining a foundation, with initial investments as low as $100,000 in some cases with the latter outfit. Foundation advantages include complete control over grant making, along with tax deductions of 30% of adjusted gross income for cash donations and 20% for appreciated securities and real estate. Ideally, family members sit on the governing board.

These vehicles have become popular in recent years, as well as charitable-giving vehicles such as donor-advised funds and community foundations. The former enable individuals to invest as little as $10,000 in a fund administered by a nonprofit organization that goes toward specific causes. Donor-advised funds are offered via gift funds formed by large financial institutions such as Vanguard or Charles Schwab, as well as through community foundations, which are nonprofit entities that fund charitable endeavors in a particular location. Their advantages include providing deductions of 50% of adjusted gross income for cash gifts and 30% for appreciated assets, although donors don't have final say over the grant making.

For philanthropy-oriented clients more concerned with tax planning than control issues, Horowitz suggests donor-advised funds and community foundations. For wealthier clients where estate planning and a greater desire for control over their assets are an issue, he leans toward private foundations.

For some clients, there's a trade-off between finding the most tax-effective gifting option and maintaining control over their charity-bound assets. "Part of my job is figuring out the most important priorities of my clients," says Leslie Kelly, director of philanthropy at Charles D. Haines LLC, a financial planning firm in Birmingham, Ala. "A family might require more than one vehicle."

Kelly will pursue philanthropy with clients who show a predisposition by serving on nonprofit boards or doing some form of gifting, even if it's just check writing. If fact finding reveals that a client is interested in possibly setting up a structured foundation involving the entire family, Kelly joins them on a family retreat aimed at fleshing out their goals and attitudes. One retreat took place in the parlor of a family's church, which was convenient for all the family members. Often, retreats take place in a family member's home. "They don't have to be elaborate," says Kelly, "but it must be a situation where the cell phones are turned off and there's a real commitment to that time because you don't want to rush this process."

Kelly uses a technique called a genogram, a variation of a family tree where participants open up and tell stories about their upbringing. It starts with both the husband and wife discussing their experiences and the values that mattered to their families, leading to stories about their parents, grandparents and siblings. Then the children share their stories, as do their spouses if the in-laws are part of any foundation that might arise from this process.

"It can be a pretty intensive and time-consuming process, but it's a great deal of fun," says Kelly. From these stories Kelly listens for key words and values that matter to the family, and synthesizes them into ideas that channel the gifting toward causes that resonate with their core beliefs.

If a family thinks that creating a private foundation is the proper course, Kelly helps them develop a vision and a mission for the foundation. "You must focus on what really matters," says Kelly. "You can't be all things to all people."

Economy Hurts Giving

Following healthy upticks in total charitable giving in the United States during the last bull market, philanthropy levels leveled off during the subsequent down years of 2001 and 2002 (the most recent data available), according to the American Association of Fundraising Counsel. Anecdotal evidence from advisors indicates that giving rose a bit last year, but that munificence isn't totally back in vogue.

"Most of my clients want to keep the money for their own family and financial security," says Phillip Howard, a certified financial planner with The Retirement Wealth Coach in San Antonio. He adds that many clients were shaken by stories of people who lost fortunes during the bear market, or they were turned off by some of the negative reports surrounding certain charities after 9/11.

Howard says he always suggests philanthropy as an option to individuals, but he won't pursue it if they say no. If they say maybe, he'll explore the topic further during client discussions in his office. In general, his vehicle of choice is the charitable remainder trust, which provides donors and their chosen beneficiaries with a set amount of income during their lifetime and gives the remainder to specified charities upon their death. He likes their tax advantages (including no capital gains on appreciated assets) and flexibility (donors can choose the trust's income and charitable beneficiaries).

Kacy Gott, a principal with the wealth management firm Kochis Fitz in San Francisco, finds that economic and age demographics among his Bay Area clients lead to nonstructured, less-intensive charitable vehicles. Many of the nouveau riche of Silicon Valley are young families not yet concerned with creating legacy-based gifting programs. And in cases where exercised options are a source of wealth, expediency counts in order to optimize a person's tax situation within a particular tax year.

"Often there isn't much time to do in-depth soul searching about developing mission statements and plans of actions and things like that," says Gott. As a result, he generally recommends that charitably inclined clients go the route of community foundations or donor-advised funds. "These are popular with many of our clients, and they'll accomplish most of their goals," he says.

More Than Tax Planning

Of course, client attitudes toward philanthropy can vary widely. Donor research by TPI found that many clients are interested in holistic approaches to philanthropic planning that pay more attention to mission and goals and less on tax planning alone.

"My perception in talking with advisors is that high-net-worth individuals aren't self-directed and want to have everything done for them," says Page Snow, senior vice president of foundation services at Foundation Source, a Norwalk, Conn.-based company that operates 150 private foundations initiated through independent advisors or large financial institutions. Foundation Source provides tools for advisors to bolster their philanthropic knowledge base and devise programs customized to client needs.

Bob Thompson has placed three of his clients with Foundation Source. "We find that it fits with our practice," says Thompson, president of Sage Financial Design, a fee-based financial, estate and tax planning firm in Simsbury, Conn. "We're concerned that charities will miss their fair share of the pie with the much talked about wealth transfer."

Thompson believes deeply in philanthropic planning, and he tells new clients up front about his self-described "bias." "Everybody is philanthropic," he says. "They just don't know how to do it."

Not all his clients choose to participate in gifting, but those who do go through a multi-stage fact finding process that enables Thompson to find the best-fit charitable giving option. For legacy-based vehicles such as foundations, he says success is predicated on making sure the patriarch generation doesn't try to impose its "moral compass" on subsequent generations.

In other words, each generation's experiences shape their world view and sense of what's important, and all voices should be heard. "Participation by the generations is part of the bonding process," explains Thompson, adding that it engenders support from the children toward their parents' charitable intent and helps them understand that their inheritance isn't being given away.

For Horowitz, the California charitable tax planner, engaging clients in the philanthropic process benefits both parties. He says the second generation appreciates being included in family financial discussions, and as a whole it helps put families on the same page. And from his perspective, it's good business because it cements his ties with the family.

"They might have assets in other places," says Horowitz, "but since we aggregate all of the assets we are the true quarterback in the financial relationship."