Are Americans generous? Yes! Here’s a surprising figure: According to Define Financial, Americans give seven times more to charity than Europeans. They also report about 60% of Americans are engaged in charitable giving. Philanthropy Roundtable reports 97% of wealthy people give to charity. Charitable giving is important to HNW individuals. You should be involved.
Before we look at the reasons people give to charity, let us start with “Charity begins at home.” Why do you want your father-in-law as a client? Imagine they approached one of their friends and asked them to do business with you, their son in law, the financial advisor. The friend says: “Do you do business with him?” Your in-law remarks: “No, I don’t, but I think you should do business with him!” If you are going to talk with clients about charitable giving, you need to be a charitable donor yourself. You need to walk the walk.
Why Your Client Gives To Charity
There are many reasons people give to worthy causes. The critical expression is 501(C)3, the IRS designation for a recognized charity. Political contributions are not considered deductible as charitable contributions.
1. Out of a sense of social responsibility. This has been a motivator for the super wealthy for a long time. The Ford Foundation and the Carnegie Foundation come to mind. Bill Gates is a contemporary example. Winston Churchill said: “We make a living out of what we get, but we make a life out of what we give.” I heard an urban legend, something I cannot document or prove, back in the 1800’s, a handful of philanthropists supported the arts in Philadelphia, feeling it was their responsibility to make culture available to the masses.
Advisors: If great wealth is involved, there is often a private foundation set up, an entity that survives the original donor and is administered either by subsequent generations or trustees. That money is invested for the long term and needs to be managed.
2. A firm belief. According to the National Philanthropic Trust, the main recipients of charitable giving were religious organizations (27%), education (14%) followed by human services (13%) Taking those first two categories as examples, they contribute to their faith or their college.
Advisors: The donor can be a point of entry and introduction to the recipient institutions. A local religious organization might not have an endowment set up yet. Both organizations would probably welcome a financial professional who can explain to others why giving to charity makes sense on several levels.
3. They want to create a legacy. Hospitals are great at putting people’s names on rooms and buildings. Many people would like to be remembered after they have died. You need to be pretty famous to have an airport named after you, but the right-sized check can get your name on the new wing at the hospital or the art museum.
Advisors: You might be able to help your client “shop around” for the places where their contribution would make the largest impact. A major museum might put your name on a plaque. A small museum might put your name on the new wing.
4. Endowing scholarships. Colleges need money to keep the lights on. The fundraising industry term in “unrestricted giving.” Some people want more control over how their money is spent. They might prefer to fund one or more scholarships for deserving students meeting specific criteria.
Advisors: This might be awarded to local high school seniors towards tuition at the college of their choice. This would be a separate account structure, logically managed for the long term.
5. They are reducing the size of their estate. Every so often, the government talks about reducing the size of the estate tax exemption. When it comes to collecting taxes, the government might be agreeable to “pay me now or pay me later” but they want to be paid. The tax code is dynamic, changed to eliminate loopholes as they are identified. Charitable giving is one of the few ways you can reduce the size of your estate in your final years.
Advisors: You can help make the introduction between the generous client and the causes they would like to support, assuming there is nor already a relationship in place.
6. Reduce their taxes. Giving appreciated stock is an ideal way to both help an organization and avoid long term capital gains taxes. The charity might be talking about a large gift, which the client cannot see writing a check to cover. They might think in terms of selling stock, but are held back because of perceived capital gains.
Advisors: Every advisor knows about this benefit, but not necessarily every client. If the organization doesn’t get stock donations very often, you might set up this account for them.
7. Their life was saved. This helps hospitals a lot. If a famous surgeon saved your life, you feel a debt of gratitude towards them. Later, the hospital sits you down with the doctor and a development office person, explaining that department needs an expensive piece of equipment. It is hard to say no if you have the money.
Advisors: As their advisor, you will probably be the first person to suggest how they can raise the money.
8. They need income. There are ways to “have your cake and eat it too.” Charitable gift annuities allow the client to both make a gift to the charity and continue to collect income during their lifetime.
Advisors: You know how these work and can bring both the charity and your client into the picture.
9. Gifts from their estate. Some people want to give to charity, but are counting their pennies in retirement. They might be in a good position to give a gift from their estate when the time comes.
Advisors: You are in a position to show them how to make this happen. They might make the charity a beneficiary of their IRA account. The charity might prefer an irrevocable gift. You can show your client all the options.
10. They want access to HNW circles. This is a less than altruistic reason. Your client wants to “run with the big dogs.” They might want to get into the right clubs and be invited to the right parties.
Advisors: If you are wired into these circles already, you can suggest which charity galas to attend, stand alongside them and make the right introductions. If they are ready to write checks, you can introduce them to the development staff.
People give to charities for many reasons. The advisor can often be a part of this process.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.