Giving Back

Part one of the questionnaire includes questions about the client’s values, missions, and goals. What do they want to achieve? What is most important to them? What kinds of values do they want to pass on to their children? What legacy do they want to leave behind?

Part two is about financial independence. “For the average person, and even for the wealthy, the answer to ‘How much do you need to be financially independent?’ is ‘Everything I’ve got, plus some more,’” says Harris. “But people really need to define financial independence for themselves.” The questionnaire asks them how much they think they’ll need, and asks them to identify whatever additional safety margin they believe is necessary. Interestingly, it’s this item that prompts the most disagreements. “Usually the spouse that has been the most involved in the work and the development of their financial success is most confident that they have an adequate financial base,” he says, while the other spouse is often less certain.

Part three of the questionnaire deals with the client’s current and future legacy for family and friends. What do they want to share with their family and friends, now and in the future? Do they want to help their grandkids go to college? Do they want to leave a business to a family member?

And part four is about benefiting society. “All transactions involving appreciated assets raise this issue, and many people have charitable intentions beyond those motivated by taxes,” says Harris. “So how would you be most satisfied to have this money–that is going to benefit society–be used?” To help the clients think more broadly, some of the questions are hypothetical, such as “If you had a million dollars to give away today, what charities or social benefit organizations would you give it to?”

The Lucky Winners

Answering that million-dollar question usually comes fairly easily to most clients, though for some its much more difficult than you’d think. A doctor client who wants to improve pre-natal care for Native American mothers may not know which specific organization is performing that kind of work; a business-owner client who wants to bring computer skills to local inner-city children may not know how to make that happen. As a rule, Harris advocates contributing to existing organizations rather than forming new ones (and thus creating more overhead); for instance, the client in the latter example might pay to establish a computer lab in the local Boys and Girls Club, rather than creating a new charitable organization to do the same job.

Harris also talks with clients about the amount of client work associated with certain gifts. For example, funding a scholarship for microbiology students at Stanford University may sound rewarding, but it also requires effort: The client has to advertise for applicants, review the resumes, interview the students, and select a recipient–and find the time to do so every year. An outright gift to the Stanford biology department, on the other hand, would require far less legwork.

Most clients choose organizations with which they have a current or historical connection: the college they attended, a health institute that has served them well, the local Habitat for Humanity chapter where they currently volunteer. Many clients select their alma mater, church, or synagogue as a major beneficiary of their charitable dollars, and Harris certainly doesn’t discourage them from doing so. But he also “likes to look for those opportunities where people are receptive” to something a bit more creative. “It’s kind of ironic,” he admits, “that a lot of people’s end-of-life gifts go off to an institution, like their alma mater, that they haven’t been involved with for 50 years. What they have the connection with is the memories of that institution, more than its current status. Whereas with the organizations they’re currently involved with, they’re more aware of [the actual status], warts and all.” In any case, the important thing is that the clients reflect on why they’re giving to a certain institution, and make sure that they’re making the gifts that will give them the most satisfaction.

Risk, too, is part of the discussion, since gifts, like investments, carry varying levels of risk. A low-risk gift is one that’s guaranteed to have the desired result, such as donating funds to construct a building at an established university. A higher-risk gift comes with the potential for significant results, but the possibility that such results may not fully come to pass. Donating funds for innovative cancer research would fit into this category: It has the potential to change the face of modern health, but it might also simply lead to a little bit more knowledge, but no major breakthroughs. “For some people, their philosophy is, ‘Well, it’s a charitable gift–I’m giving it away–so that can be high-risk,’” says Harris. “For other people, it’s ‘I worked my whole life to accumulate this, and I want to do something pretty concrete with it. I don’t want high risk.’” For many clients, it’s helpful to diversify the risk in a client’s charitable portfolio, just as one would diversify risk in an investment portfolio.

While Harris doesn’t steer clients toward giving to one institution over another, he does admit that there are some gifts he won’t help clients with. “In my case, the example [of an objectionable gift recipient] would be the National Rifle Association,” he says. Fortunately, he’s never had a situation where a client wanted to make a gift that made him squirm, but “the client can decide whether they want to work with me, and I can decide whether I want to work with them,” he says. “If there was a major conflict like that, I would communicate with the client that I think they’d be better served working with someone else.”

Hybrid Vehicles

Once the clients have identified the lucky recipients of their generosity (both charities, family members, and their own retirement income needs), Harris analyzes the appropriate strategies that will help them achieve their desires. As a hybrid- and electric-car aficionado, it’s fitting that he spends significant time making sure each charitable giving and estate planning vehicle works as efficiently as possible. Clients who seek advice from inexperienced advisors often get “the cookie-cutter plan for that advisor, or the plan that is safe harbor for that profession,” he says, so he makes a point to explore more obscure strategies that might fit a particular client’s situation. While many vehicles are most easily explained with “classic case” scenarios (Strategy X works best in Situation Y with Z kind of assets), there are always exceptions to the rules, and a good charitable/estate planner has to know those exceptions, he says.

The “classic case” scenario for a charitable remainder trust, for instance, is that it’s used when a client has highly appreciated assets. However, for a real estate developer (such as the aforementioned Marvin Soiland), undeveloped land is an inventory asset subject to ordinary income taxes, not long-term capital gains taxes. “The developer’s appreciated real estate doesn’t have the tax advantages in a charitable remainder trust,” says Harris, “so you can have scenarios where funding a CRT with cash is in fact a good strategy.” Getting this strategy implemented meant some polite but determined discussions with the charity’s planned giving staff person, but eventually Harris prevailed. “My job is to step back from the classic assumptions and look at the real situation of that client, and compare it with the alternatives, and do an analysis that allows everyone to get comfortable” with the chosen strategies, says Harris. “Your intuition tells you that it’s cheaper to call down the street than coast to coast, but it isn’t always true,” he adds. “There are things like that in charitable giving; your intuition isn’t always right.”

In place of intuition, Harris uses a collection of analytical tools, including Crescendo (www.crescendointeractive.com), a software package of planned giving calculations and presentations; and Zcalc (www.zcalc.com), a set of financial functions and templates that can be used in conjunction with Excel. But even with these tools, he still relies significantly on his own custom-built spreadsheets, since the programs often can only illustrate the results of one vehicle at a time, not the interplay of several.

Rather than plunking down a finalized plan in front of the client or her advisors and telling them, “This is how it’s going to be,” Harris provides them with an electronic file of the client’s custom spreadsheet so that they can punch in different numbers and see the results. If, for instance, the client has appreciated but concentrated assets that she wants to diversify, and Harris is recommending that she sell some, give some to a charitable foundation, and give others to a charitable remainder trust, the client and advisor can “look at different alternatives, mix and match, push those percentages up and down,” says Harris. Accompanying the file are several one-page flow-charts depicting each planning vehicle, plus a page or two of bullet points explaining what is accomplished in each step.

Moe Jacobson, an advisor with Raymond James Financial Services in Petaluma, California, worked with Harris on a complicated client case involving a charitable remainder trust and environmentally “challenged” land, and he has nothing but praise for the final outcome. “He solved it very neatly, without compromising anyone, and benefiting everybody,” says Jacobson. “He created a very artistic solution to what could have been a very challenging dilemma.”

While both Jacobson and Soiland praise Harris’s intellect–he has a Ph.D. in agricultural economics (prompting Jacobson to dub him “Dr. Dirt”) and clearly enjoys the analytical challenge of piecing together complex vehicles–they also agree that his own philanthropic interests do much to burnish his credibility. With a previous career in planned giving, charitable plans of his own, and a record for encouraging giving even when it hurt his own checkbook (he encouraged his ailing father to make a major testamentary gift), Harris comes across as someone who believes he’s doing work that really matters. “He has a very practical approach to solving estate-oriented issues,” says Jacobson, “but he also has a very philanthropic heart.” Andrew Carnegie once said that “he who dies rich, dies disgraced.” With Harris’s help, perhaps at least a few more people will leave legacies that make them worthy of respect.