Close Close

Financial Planning > Charitable Giving

Help Your Clients Make The Most Of Their Charitable Gifts

Your article was successfully shared with the contacts you provided.

Each year, Americans give billions of dollars to support their favorite charities. Total charitable giving reached $240.92 billion in 2002, with 76.3% of that figure coming from living individuals, according to the American Association of Fundraising Counsels 2002 Annual Report on Philanthropy.

So, we know that our clients are giving. What many of them arent doing, however, is taking advantage of us and the strategies we can implement to help them give smarter. First and foremost, we need to know who those clients are.

The Connecticut Council for Philanthropy ( suggests that advisors should recognize that many of their clients may want to pass on their assets to a charitable organization. In particular, clients who come to mind are generally:


Married without children;

Married couples who have independent children;


People with an existing relationship to a cause or community organization;

People who are financially comfortable but not necessarily wealthy;

Owners of privately held companies; and,

Owners of appreciated securities or real estate.

There usually are two reasons for clients to consider taking advantage of a charitable giving strategy. One, the client has significantly appreciated, low basis assets and two, the client has money that he or she never intends to need or spend.

Private foundations and charitable remainder trusts are two of the more popular tools that financial advisors, along with their clients attorneys, recommend for charitable giving strategies.

Private Foundations. According to the PricewaterhouseCoopers Guide to Charitable Giving, a private foundation is a tax-exempt organization that is organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes but does not meet the broad public support requirements that would classify it as a public charity. Private foundations also are considered Section 501(c)(3) organizations. An individual or family often establishes a private foundation. In addition, many corporations establish foundations in their names.

The major difference between public charities and private foundations is the limitations on deductions. Another important difference is that most private foundations are subject to an excise tax on investment income each year.

You dont have to be an athlete or a celebrity to have a private foundation. If a client is interested in setting up a private foundation, be sure to work with an experienced tax attorney and accountant. Federal and state laws can be very complicated, and its necessary to follow them all to maintain the foundations tax-exempt status.

For example, there may be limits on who can be a director of the foundation. The founders probably can play a role in the operation of the foundation, and so can friends or relatives, but some outside oversight may be required. Tax laws can be tricky, too. There are limits as to how large a deduction one can take, in relation to his or her income, if he or she makes donations to a private foundation.

Charitable Remainder Trusts. As a general rule, it is best to fund a charitable remainder trust (CRT) with an asset that, if sold outside the trust, would produce substantial long-term capital gains tax. After the trust is executed, the donor transfers this appreciated, low or non-income producing asset to the CRT. The CRT sells the asset and gives the donor an income for life, for a term of years or for joint lives. At the death of the donor or the donors named non-charitable income beneficiary, the remaining trust assets pass to the charity. Here are the benefits:

Upon creation of the trust, the donor gets a current income tax deduction based on the future amount passing to the charity;

No tax on the gain is paid by the trust, since the trust is exempt from such tax when it sells the asset;

The donor receives an annuity that is equal to a certain sum or a fixed percentage of the fair market value of the trust assets; and,

Estate taxes are reduced, since the asset placed in the trust has been removed from the estate.

When To Raise The Subject Of Charitable Giving. According to the Connecticut Council for Philanthropy, circumstances in clients lives usually cause them to begin or alter their financial plans, including charitable giving. The following scenarios might signal an opportunity for a discussion about planning and how charitable giving can help achieve their goals:

Your clients tell you that they are about to take their company public, or that they want to transfer ownership of the family business to the next generation;

Your client tells you he wants more income from his stock but worries about capital gains tax if he sells;

Your client discovers he has a large retirement fund of which his heirs might receive only 30 cents on the dollar;

Your client says she would like to provide income to her mother, sister, niece, or others; or,

Your client tells you that she is expecting a big bonus from her company.

Private foundations and charitable remainder trusts are just two of the many tools available to clients who count philanthropy among their top priorities.

Its up to us as financial professionals to educate ourselves and, in turn, lead our clients on how to give in ways that make the most of their charitable gifts while preserving income, avoiding excessive taxation and protecting wishes.

Advisors should fully educate themselves by attending workshops and thoroughly reading up on this subject. Networking and partnering with attorneys well versed in charitable giving techniques are other effective ways to get a great start to help us deliver and implement charitable giving strategies.

Many of our clients dont realize what they can accomplish through the financial planning process. Its important to remember and be sensitive to the fact that any tax incentives related to a charitable gift are generally not the primary reason that our clients support their favorite charities. Keep your focus on the personal fulfillment a gift will give to your client; benefits like tax incentives are just gravy.

Mark D. Olson, CFP(R), MSFS, is a senior financial planner with Olson Financial Group and MetLife Securities Inc., Berkeley Heights, N.J. He can be reached at [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.