From the August 2007 issue of Boomer Market Advisor • Subscribe!

A charitable resurgence

As you've probably noticed, charitable giving is going through quite a resurgence of late. There are a number of catalysts one could point to as a reason -- prominent role models such as Bill Gates and Warren Buffett, aging affluent boomers looking to add a more fulfilling dimension to their lives, the enormous creation of wealth over the past few decades or the response to high-profile disasters such as September 11, the Indian Ocean tsunami
and Katrina. Whatever the cause, there is an important role for advisors to play.

The emerging affluent are giving to charity, whether or not their advisors are involved. More Americans give to charity than vote. According to Giving USA, in recent years the greatest increase in giving has been in households with incomes higher than $1 million. An estimated 95 percent of those with a net worth of $5 million or more give to charity. Americans gave $295 billion to charity in 2006 and 76 percent of those donations came from individuals.

Many advisors are uncomfortable in asking their clients, "Are you charitably inclined?" The obvious reason is that a negative answer makes all parties uncomfortable. A better approach is to help your clients realize that their wealth can be structured to provide a comfortable lifestyle and a lasting legacy. The emerging affluent, and often
extremely affluent, worry they'll outlast their money and leave nothing for their children. So the single most effective thing an advisor can do to increase giving and deepen relationships is to help clients better understand their financial needs and goals, and how a planned approach to wealth management can help address both.

Some advisors are reluctant to raise the charitable giving topic because it's not an area of expertise. But an advisor doesn't need to be an expert to help clients with their philanthropy -- the advisor only needs to be the facilitator: raise the subject, assist clients in understanding the financial implications and then identify the products and services to achieve their personal goals. Advisors who uncover opportunities to improve their clients' financial lives earn more than their fee -- they earn trust.

Though most of your clients are already giving, they may not think of themselves as philanthropists, nor approach their giving strategically. Having goal-focused conversations with your clients can provide real value, especially if those conversations are structured to inspire and define impact, both in terms of one's lifestyle and the legacy one leaves to family and community.

Often, financial experts instinctively approach charitable giving from a tax planning perspective. This focus is important but limited, particularly given several studies which have found that, for many donors, tax benefits are not the primary motive. Though tax planning may not be the primary reason people give, taxes can be a trigger, particularly with sudden wealth creation or liquidation events. When selecting a method of giving, it is often helpful to look beyond the tax benefits and think in terms of the client's need for control, privacy, income, their tolerance
for complexity and their desires regarding their legacy.

For example, private foundations offer a tremendous level of control over how grants are distributed, assets invested, even the ability to hire and pay staff. But private foundations have lower tax deductibility limits than other charitable organizations and donors sacrifice privacy, since foundations must file an annual return (publicly-accessible, often via the Internet). Donor-advised funds have greater privacy, lower costs and higher deductibility limits, but they do not provide the same level of control found with private foundations. In addition to these endowment-style giving vehicles, there are a variety of split-interest giving vehicles, such as charitable trusts and charitable gift annuities, which have their own benefits and limitations. Adding further to the complexity, but testament to the varying benefits of these techniques, an increasing number of donors are using multiple giving vehicles in concert in order to leverage the best of what each has to offer.

While there are many ways to give, the most successful approaches are concerned less with tax-planning techniques than with clients' financial needs, goals and hopes for their legacy. Just as one would never suggest
a mutual fund without knowing a client's risk tolerance, one should never suggest a giving vehicle without first understanding the client's deeper motivations and concerns.

The better you understand your clients -- not just how they want to grow their wealth, but what they hope to accomplish with their wealth -- the better you're able to tailor a financial and charitable plan to their needs. This, in turn, builds a trusting relationship that can last for generations. Advisors who engage clients in charitable giving discussions in this way refer to the outcome as a triple win -- it benefits the advisor's practice, their clients' and society as a whole.

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