Givers are optimistic by nature—they believe that through donations and other charitable activities, they will beget change, even if the result is not immediate or tangible. In the era of instant gratification, that requires tremendous discipline.
And one of the more disciplined yet often overlooked approaches to giving is one that involves a client’s values, their hopes for the future and thoughts about the legacy they’re leaving as well as careful considerations about their estate and tax planning.
This approach is known as planned giving.
What Is It?
Planned giving means donating money or assets to charity during your client’s lifetime or as part of an estate plan and doing it in a structured way to achieve the most financially optimal results. It can involve giving a variety of assets, such as cash, securities, real estate, life insurance and money from retirement accounts. It can also include opportunities to secure lifetime income.
Creating and executing a planned gift involves tax and financial strategies, the clarification of charitable objectives, and the legal and administrative work required to document and carry out the donor’s wishes. The process involves calculating a charitable deduction; preparing financial projections; and drafting wills, trusts and other documents. Beyond that, it also includes the ongoing work required to achieve your client’s charitable goals and ensure the contribution is optimized for both them and the charity.
Many charities are willing to consider and accept complex planned gifts and even have gift planning specialists on staff. A gift planning specialist can serve as a key ally in helping you and your client explore and understand different gift types, structures and tax-efficient strategies for your client’s giving.
Why Should Your Client Make a Planned Gift?
There are myriad reasons to use this approach, though the strategies and objectives differ for different clients. The motivations might be similar to the ones someone has for pursuing a donor-advised fund or private foundation. Here are a few of the more popular reasons a client might make a planned gift:
• They want to support a cause. Many people make planned gifts because they have a specific mission—they want to help people at risk, for example, or fund research on a particular disease, or preserve something like a piece of art or a natural resource.
• They want to leave a legacy. A planned gift can ensure a client’s values are carried on long after they are gone. This can take many forms, ranging from a donation that will put their name on a building or memorial to something more complex, like an endowed program or scholarship that evolves over time.
• They want to reduce, avoid or defer their taxes.
One notable difference between planned giving and other methods of giving is that it lets the donor structure their assets to accomplish other things as well, such as providing for loved ones. Clients can provide security for spouses, children or grandchildren by bequeathing their assets in a way that delivers their beneficiaries an income stream or lump-sum payments.
Understanding your client’s priorities is key in navigating a conversation about planned giving. You can ask them things like, “What would you like to do with your money that would be meaningful to you?” Such questions advance the conversation and help you understand where your client wants to make an impact. It is also important to make this an ongoing conversation, because their priorities can change and evolve over time.
You can also use planned giving in conjunction with a tax-advantaged vehicle like a private foundation or a donor-advised fund (which holds assets earmarked for charitable use) to achieve layered philanthropic objectives and maximize impact for the donor and the grantee.
It’s important to ask about your clients’ philanthropic intent. Clients are often interested in investing and saving not just for themselves but for their families and communities. They can reduce their taxes along the way, but no matter how many tax and financial advantages they have layered on a charitable contribution, these benefits would not matter unless the clients were also generous.
Ultimately, the decision to make a planned gift will be personal, but if you understand the benefits and opportunities available, you can help educate and support your clients in accomplishing their multifaceted wealth goals.
Craig Wruck is senior advisor in the planned giving division of Foundation Source, the nation’s leading provider of technology, administration and expertise for private foundations and planned gifts.