From the October 2005 issue of Investment Advisor • Subscribe!

Giving With Head as Well as Heart

At a time when Americans are being asked to give generously and then give again to help rebuild the lives of displaced evacuees of Hurricane Katrina, advisors must look at the quality of the advice they give their clients on charitable giving. The opportunity for scams is rife at highly emotional times like these, but far less so for clients who are prepared.

We are in a unique position to inform our clients of the financial rationale for charitable giving and the benefits to their overall life planning that such generosity provides. Our firm often advocates donor-advised funds for our clients because of the potential advantages to them and to the organizations they wish to support.

The donor-advised fund is a particularly good conduit for gifts of appreciated securities. Donating such securities to individual charities is often time-consuming and frustrating, and requires specialized skills within the charitable organization. Foundations that offer donor-advised funds, on the other hand, have the expertise and the infrastructure to sell the securities expeditiously, allowing donors to quickly advise and gift to numerous charities.

Because of the needs of our firm's clients with charitable intentions, we have set up the Bingham, Osborn & Scarborough Foundation, under the well-managed and innovative Marin Community Foundation. This makes it possible for our clients to create donor-advised funds within the foundation, to make charitable contributions conveniently, safely, and in full compliance with the law, while maintaining our firm as the investment manager.

Typically, community foundations do not allow outside investment management within donor-advised funds for a number of administrative and due diligence reasons. The client is consequently not encouraged to make larger contributions that might be held within the fund for longer time periods. Knowing we will be managing the money, clients are encouraged to make larger initial gifts, with the added benefit of timing donations to years when they have larger incomes and can make greater use of the charitable deduction. The deduction comes with the contribution to the fund. Subsequent gifts to charities can then be made at any time the client sees fit. Foundations can also offer valuable research on charities.

The Red Cross and Salvation Army are receiving the bulk of the Katrina donations because of their cost-efficient use of funds and because they perform emergency relief. With a donor-advised fund, your clients could recommend contributions to the relief efforts, large and small charities alike. Advising the foundation on specifics of contributions can often be done expeditiously online, with future contributions to the same charities easily referenced and directed.

Donor-advised funds are also an excellent opportunity to involve multiple generations of family members in giving back to those in need. Clients can teach their children philanthropy by involving them in charitable decisions for a family fund that can last two or more generations.

A massive national tragedy will prompt your clients to make financial gifts from the heart. It is the financial advisor's job to help prepare clients to make those decisions from the head with assets set aside for this purpose.

Robert Bingham is a founding principal of Bingham, Osborn & Scarborough, LLC, a comprehensive wealth management firm in San Francisco. He can be reached at bob.bingham@bosinvest.com.

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