Mike Lynch, vice president of strategic markets for the Hartford Funds (who reports a client did in fact have valuable weather vanes she donated to charity), says giving strategies help advisors get to know their clients better. “The last thing you want to do when a client wants to make a charitable contribution is to correct them about what they should give,” he says. “But you can ask them if they have thought about donating an asset other than money, or if they have considered giving through a different vehicle. Show them complementary ways they can make the donations they want that, at the same time, benefit them the most.”
Advisors can be an instigator here, says Paul Tarins, founder of Sovereign Retirement Solutions in Winter Park, Fla. “It is very proper for an advisor to bring up philanthropy with a client,” he says. “It is part of our obligation to ask how they feel about charity. I am a firm believer that advisors have an obligation to do more than just look at a client’s financial statements.”
For advisors, the role centers on making the client’s goals are executed. “Our job is not to change a client’s desires,” says Michael Delgass, managing director of Sontag Advisory in New York City. “We do not want to overstep our boundaries, but we can see that clients’ charitable wishes are implemented in the most efficient manner. We find out who they want to give to, how much and when, and then as advisors we find the best way to do it.”
There are a number of ways to give lasting gifts to a favorite cause. Charitable lead trusts are particularly advantageous in a low-interest-rate environment, says Kathryn Garrison of Moss Adams Wealth Advisors. The income from the assets, which are not providing much income anyway, goes to the charity over the years and then the remainder goes to heirs.
There is also a charitable remainder trust, where the income from the assets in the trust goes to the creator of the trust and the money left at the end goes to the charity.
Donor-advised funds are also popular because they offer more flexibility than a foundation and are easier to establish. The donor-advised fund offerings from financial giants Schwab Charitable and Fidelity Charitable reported increased grant-making this year. Schwab Charitable’s giving was up 30% in fiscal 2015 over fiscal 2014. Fidelity’s was up 32%.
Another alternative for high-net-worth philanthropic clients is to create a private foundation, which is a little more complicated but can be made easier with the assistance of organizations such as Foundation Source that help individuals set up the entities and run them after they are established.
Foundation Source says there are particular times when an advisor should consider bringing up philanthropy with a client. The year-end meeting is a good time to talk about giving because clients are considering the tax implications of their assets. Another good time is during the estate-planning meeting, when clients are already talking about how they want to preserve money for heirs.
If a client is anticipating a liquidity event or is coming into an inheritance, that is also a good time to talk about reserving some of the money for charity, Foundation Source says. And advisors might want to bring up donations in discussions about assets that are not performing as well as expected, since donating these might be a way to blunt the impact of capital gains taxes, Foundation Source says.
Although foundations in general did not receive as high a return rate on assets last year as they did in 2013, foundation giving was up 7.8% in 2014 over 2013, Giving USA reports. Private foundations reported average returns of 6.1% last year, down from 15.6% for fiscal 2013, while community foundations reported returns of 4.8% compared with 15.2%, according to a joint study by the Council on Foundations and the Commonfund Institute.
Most individuals are continuing to feel good about their stock returns and therefore more comfortable with donating to others than they did during and immediately after the Great Recession, advisors say. The recent blips in the market and the instability now being felt are too short-lived to have an impact on long-term philanthropy, says Tarins.
There is an advantage in planning to give ahead of time, even for onetime events like the Nepal earthquakes or the marathon bombing, says Adrienne Penta, who is in charge of trust operations and wealth planning services at the Boston Private Banking office of Brown Brothers Harriman. “We can do the tax planning up front, and the client knows the assets are there for an unplanned event,” Penta says. “Many charitable gifts are reactionary or emotional for the client. It is incumbent for the advisor to make the client aware of the opportunities around philanthropy, whether it is a regular donation or a onetime event.”
“The 60-year high for total giving is a great story about resilience and perseverance” on the part of the philanthropists, says Curtis of the Giving USA Foundation. “With virtually every economic indicator that gets measured showing growth, I think it’s safe to conclude that they played a large part in making 2014 a banner year for giving from every source.”