At the Kanaly Trust Company in Houston, Vice Chairman Steve Kanaly says the subject of philanthropy usually starts with a simple question to clients: Who are you working for? In other words, Kanaly says, are clients working for their children, charity or the U.S. government? "It really comes down to mathematics and what transfers they want to make during their lifetimes," he says.
Most often, the government is the big loser when that question is answered. Surprisingly, charity is often the big winner, even more so than children, he adds.
Many affluent clients, he says, don't want to leave too much money to their children, which results in assets spilling off into charity. "Many clients feel money can do something to people as well as for them-make them lazy and maybe not as professionally driven as the parents want," he says.
Putting the right tools to use gets even more complicated as the amount of assets involved increases. This has led to more emphasis being put on philanthropy at some firms that focus on affluent clients.
Charles D. Haines started a philanthropy department at his firm-where clients have minimum assets of $1 million-four years ago to prepare for the massive wealth transfer that will take place as the baby boomers age and pass away. It's been estimated that about $41 trillion will be passed down through inheritances over the next 50 years, with $6 trillion of the total going to charity.
"It was a natural progression," Haines, owner of Charles D. Haines LLC in Birmingham, Ala., says of the decision to start the philanthropy department, which consists of a full-time CFA and an assistant devoted totally to client philanthropic needs. Those duties include running several family private foundations.
"Whatever the baby boomers are doing becomes a driving force," Haines continues. "We needed to get ahead of the curve."
The department got off to a slow start, which Haines attributes to the fact that it was launched at the start of the three-year bear market. Now that investors are starting to recover, he says activity in the department is picking up.
The firm's services are also being used for outsourcing. Haines says a local advisory firm has approached him about handling the philanthropic services for a family with assets in the nine-figure range.
Leslie Carlisle, who directs the firm's philanthropy department, says that one key role she plays in clients' planning is making them aware of the tradeoffs involved in any decision they make. For clients genuinely interested in giving as a purely philanthropic endeavor, and who want to have direct control over where the money goes, family foundations are often the suitable option, Carlisle says.