Positive transformations can happen when clients are shown how to align their values with their money.
You make a living by what you get. You make a life by what you give. Winston Churchill
I recently attended an event hosted by my alma mater (Temple University) at the Philadelphia Art Museum. It was a Dali exhibit, funded by Dennis Alter, a Temple alumnus and president of Advanta Corporation. He has done a great deal for Temple and the community over the years, and he spoke that evening about how undergraduates are consumed with their GPA (grade point average). Now that we have graduated, he told us, we should be concerned with another GPA, which he defined as a Grand Purpose Activity. All of us, he said, owe it to our communities to give back something that for us would be our GPA. I thought about that, and my own personal giving. But I also considered how helping my clients to discover their GPAs would be a way to multiply my efforts. We have a great responsibility to help our clients reach their goals. Often those goals include philanthropy, but they may not know how giving more will affect their futures. It is our job to show them. When one of my clients first came to see us (we'll call her Nicole), she was 62 and had just retired from a career of teaching. Most of her investment portfolio of about $2 million consisted of assets in a 403(b) plan and several annuities that her previous financial advisor had sold her. As a result, just about everything she owned was in tax-deferred accounts. She was single and had no children, but she had several nieces and nephews to whom she wanted leave her estate when she died. At the time, the maximum estate tax exemption was $650,000. While tax implications should not drive estate-planning decisions, it is certainly our duty to help our clients by recommending the most tax-efficient methods of accomplishing their goals. Her problem was that almost all of her assets would be subject to both income and estate taxes when she died.
When we inquired about her charitable giving objectives, she told us that she always wanted to do more but she "never got around to it." We asked her if she would be open to a strategy that would provide for charitable bequests at her death, but would not affect the money she wanted to leave her nieces and nephews. She wanted to know more, so we described how a charitable remainder trust might work if she named the trust beneficiary of some of her annuities. We told her that she could name several charities, or just one. She seemed interested, so we ran the numbers for her. Our projections (assuming she died in 20 years) showed that the present value of the income her heirs could receive in 20 years (the income period) from the trust would be $3,093,000-only slightly less than the $3,143,000 after taxes under her present plan. However, the charities would receive $3,773,000 20 years after her death. These numbers were very compelling and she agreed to have her attorney prepare the documents. At one of our meetings, she asked for suggestions for charitable beneficiaries. We told her to be observant and think about causes or organizations that she had an interest in helping, and she eventually settled on three charities, which she named in the trust. What ensued was remarkable.
Several months later, she asked us if she could begin to donate money to those charities now, and began doing so. About a year after that, she decided to change the beneficiaries on several of the annuities so that the charities would receive some money outright at her death rather than wait for twenty years after her death. A little over a year later, she changed her entire estate plan and left smaller specific bequests to her nieces and nephews with the balance of her assets, including her IRA, going to endowments for the benefit of the charities. What happened to cause this change in her thinking? I believe that she caught the "giving bug"-she discovered her GPA. She also came to the realization that she was providing money for her relatives not because they needed it, but because she felt obligated to do so. How many of our clients would do something similar if presented with the choice and the opportunity?
According to the Institute of HeartHealth, "People who give money to charity often experience joy and satisfaction in having given. By deciding to make a difference in someone else's life, they give more meaning to their own." In Psychology Today, heart specialist Dr. Herbert Benson states, "For millennia, people have been describing techniques on how to forget oneself, how to experience decreased metabolic rates, lower blood pressure, lower heart rates and other health benefits. Altruism works this way, just as do yoga, spirituality and meditation." In addition, George Vaillant, in his book, Adaptation to Life, concluded, "Adopting an altruistic lifestyle is a critical component of mental health."
In our initial meetings with our clients, we ask about their core values Often, we will discover that philanthropy is a core value and leaving assets to their children is described as an "obligation". If the bulk of their assets are being left to their children, we pursue that disconnection between their values and their actions. Psychologists who study happiness and what makes people happy tell us that money, position, power and even health are not the things that distinguish happy people from unhappy people.
As stated above, people who give tend to be happier and healthier, and we point that out to our clients. As John Templeton has written, "Happiness comes from spiritual wealth, not material wealth ... Happiness comes from giving, not getting. If we try hard to bring happiness to others, we cannot stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it."
While we do not attempt to instill our values about giving, we feel that we need to go beyond the superficial discovery of looking at tax returns to discover our clients, desires to give. Often, clients want to give more than they presently do, but haven't done so for a variety of reasons. Such was the situation for Ben and Joan. During our discovery process, Ben told us of his desire to contribute a large amount of money to his alma mater, if not during his lifetime then via a request in his will. Joan, however, was reluctant and concerned for her own future and her grandchildren. Initially, they instructed us to proceed with our planning without the bequest. Since bringing their estate plan up to date was a high priority for them, we held a meeting devoted to that issue. Once again, I asked each of them the following question: "Ideally, what would you want to happen at your death?" Joan told us that she was most concerned about outliving their money and that she wanted anything that was left to go to her children and grandchildren. Ben, however, restated his desire to donate a substantial sum to the university. This time, however, he began to well up as he told us how important this was to him. I felt that we could no longer ignore this goal, so I asked Joan if she observed Ben's face when he told us about his goal. She said she did, but she felt that the university did not need the money and she might. Would she be willing, I asked, to consider Ben's desire if it did not affect her lifestyle? They had a very good marriage of more than 50 years and, knowing how important this had become for Ben, she was willing to listen. Ironically, while she was aware of Ben's goal, she told us, "I never knew how important it was to him until today."
We showed them how a charitable remainder trust would work, and that it would pay income while either one was alive. Of course, the children and grandchildren would inherit less, but Joan was willing to accept that since our projections estimated that there would be sufficient assets for them. They decided to transfer $500,000 into the trust. She was assured the income and he was able to fulfill a lifelong dream. It will probably come as no surprise for you to know that I believe that one of our jobs, as financial life planners, is to encourage philanthropy. We have the ability to make a huge difference in our communities by showing our clients how they can find their "GPA." We don't expect people to adopt our values about giving, but we also don't accept tax returns as the only evidence that people are charitably inclined. Ben and Joan's returns certainly provided us with no clues. It is through thorough discovery that we uncover these desires. I suppose we could have concluded that Ben's goals could not be fulfilled because Joan objected. Instead, we felt that it was our obligation to find a way to make it work.
Dave Ramsey has written, "Personal growth requires that you give money away. The institutions to which you give will survive if you don't give, but you will have missed an opportunity to benefit. Somehow giving reminds us that the world does not revolve around us, and that no matter what our financial status is someone always is in a much worse situation. Good things that cannot be calculated or quantified are set in motion in your life and in your finances when you give."
We want to do our part to help our clients experience the joys of giving. We consider charitable giving as important in the planning process as retirement planning, cash flow planning, investment analyses and other issues. Moreover, we cannot get information like this by merely looking at their tax returns, any more than we can determine their total net worth by examining investment statements. It is our experience that some of our clients' core values about giving are not aligned with their actions or plans. One reason may be that they do not believe they have the resources to give. Others may feel an obligation to leave all assets to their children. Often, the long-term projections will estimate that they will die with much more money than they dreamed possible, and this knowledge may cause them to adopt a planned giving program. Whatever it may be, it is our job to show them what is possible. We have seen major positive transformations when clients are shown how to align their values with their money. When I think about how much good we can do for our clients and others, I am convinced that there is no calling greater than financial life planning.
Roy Diliberto is chairman and founder of RTD Financial Advisors Inc. in Philadelphia.