Charitable giving is personal. Your clients’ passions are at the heart of their generosity—and as their advisor you can deepen your relationship as you help them make their giving go further and be more impactful. In fact, in a recent study of investors conducted by Raymond James, 54% said it was important to make a positive philanthropic impact, and 20% said it was extremely important.
Without a philanthropic strategy in place, well-intentioned wealthy clients often either become overwhelmed with gifting requests from charitable organizations or limit themselves to a few large cash donations each year at their favorite charitable events. But giving dollars and cents is just the tip of the iceberg for clients who are ambitious about establishing a philanthropic legacy for themselves and their families. These clients are more common than many realize; according to the survey, 12% of respondents plan to leave more than a quarter of their wealth to charitable causes.
While there are many giving strategies, such as establishing a private or family foundation, contributing to a donor advised fund or participating in impact investing, these three options are often overlooked and may suit clients who wish to make an impact but are also managing multiple financial priorities.
Charitable Remainder Trust
If a client is looking for a way to support a cause they care about while also setting aside steady income for themselves or a family member for a specific period (or for life), they might consider a charitable remainder trust. The client funds the charitable remainder trust, which is irrevocable. They can then determine how much fixed or variable income they’d like from the trust and make regular donations to charities of their choice with the balance. Once the conditions are met and the trust comes to an end, the remaining funds are distributed to the charity designated as the beneficiary.
Not only does this vehicle provide regular income to clients, with a portion donated to philanthropic causes, it can also reduce their tax burden, as the trust can be funded with either cash or appreciated assets. Something to note is that the IRS requires at least 10% of the initial net fair market value of all assets in the trust to be donated to charity.
Charitable Lead Trust
The charitable lead trust is the reverse of the charitable remainder trust in that it provides regular donations to designated charities for a specific period of time after which the remainder of the trust is distributed to a clients’ family members or other beneficiaries as an inheritance. This is also an irrevocable trust that a client can fund with cash or other assets. The income stream to charity is usually based upon the investments in the trust.
A charitable lead trust is ideal for clients who have charitable intentions that they want to see come to fruition during their lifetime. They also don’t expect their beneficiaries to need the funds in the near term, but they’d like to eventually pass down an inheritance. There are tax advantages to a charitable lead trust, including reducing or eliminating future estate taxes for beneficiaries. If the Tax Cuts and Jobs Act expires or the amount of estate tax exclusion changes come 2025, a charitable lead trust may be an increasingly popular tool for clients.
A bonus? According to the survey, three in five people said they would want to hear the impactful stories that shaped the values and character of the person leaving an inheritance. This vehicle helps the benefactor establish a philanthropic legacy during their lifetime, which can help start discussions with future generations and share those giving stories. It can even inspire their heirs to follow in their footsteps by donating a portion of their own inheritance to charity.
Charitable annuities can be a retirement tool for those who hold a particular charitable organization close to their heart. These vehicles provide a guaranteed income stream to the client over their lifetime, and the charity keeps the remainder of the principle once the client passes. Because the charity manages the annuity, only larger charitable organizations offer this option.
If your client is passionate about a charity and wants to contribute but is hesitant to donate during their lifetime for fear that they won’t have enough to draw on in retirement, a charitable annuity is a vehicle to consider. The client funds the charitable annuity with cash, securities or other assets and can rest assured they’ll have a lifetime income stream. Then, their charitable legacy will be realized upon their passing.
These are only a few charitable giving strategies to consider if you have clients who want to make a lasting impact. To determine what works best for each client’s situation, it’s important to get to the root of their worldview and values. This can be uncovered by asking the right questions during the discovery process or by picking up on their cues; for example if the client mentions that they serve on a board for a charitable organization that they’re passionate about, or if you meet them at a philanthropic event. Helping clients to pursue their philanthropic vision will deepen your connection and create a more meaningful legacy for them and their families.
T.J. King is a Chartered Advisor in Philanthropy. For more than 30 years, he has helped successful individuals and families manage and preserve their wealth, handling all aspects of their financial lives. His areas of expertise include financial planning, retirement planning, charitable giving strategies, sustainable investments and advising nonprofits and charitable foundations.