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Working in the charitable giving area has great rewards for planners: It helps them build better relationships with clients while aiding their local charitable institutions. But in order for agents to get into this market, they first must address the idea of charitable giving with their clientssomething many planners fail to bring up.

To broach the topic of charitable giving, planners need to get in touch with their clients values, explains Michael Brink, a planner with Nease, Lagana, Eden & Culley Inc., Atlanta, Ga.

“Ask them if theyve been actively involved with any specific charities, or are there causes or institutions that theyve supported and been involved in. There may be some causes they would like to get more involved inget them talking about it,” says Brink. “To do charitable planning you really have to go to the heart of the matteryou have to go to the values.”

Getting to better understand the values of your clients will naturally lead to a discussion about leaving a charitable legacy in your clients name, Brink notes.

“Everybody wants to be remembered,” adds Ed Philips, president of Philips-Cox Insurance Services in Virginia Beach, Va.

To get a sense of whether clients are charitably inclined, Philips will ask if they would like to leave 5% of their estate to a favorite charity. “Its an enormously powerful lead in,” he says, “5% isnt going to make or break anybody.”

This gives him some insight as to how his client feels about giving to charity and then presents an opportunity to do some planned giving as part of the estate plan.

While there are a number of tax benefits donors receive when making charitable donations, the tax benefits are never the primary reason for giving, according to Gary Rathbun, president of Private Wealth Consultants, Toledo, Ohio. In fact, determining a clients charitable intent is critical in the planning process, he says. If the donors intent isnt genuine, then there may be an ulterior motive behind the gift.

For example, Rathbun says one case he was involved in appeared to be a textbook charitable giving case. A privately owned business had appreciated greatly and the owner had an informal buyer lined up. The plan was to place the business in a charitable trust, where it would be sold to another companythus avoiding the large capital gains tax.

Thinking that this scenario sounded too perfect to be true, Rathbun did a little investigating on the business owner. It turned out that the owner of the business to be sold was also the owner of the business that was making the purchase. This business owner was running from a number of creditors and had planned on putting the company in a charitable trust and then filing for bankruptcy. “He was trying to run a scam to avoid losing everything,” Rathbun says. “There was no charitable intent.”

Getting involved with charitable institutions also will help agents identify with their clients. “I think everyone ought to have a favorite charity, whether its a community, a church or a school,” says Philips.

Brink agrees, but he warns that agents new to this market shouldnt look at working with charities as a “business development tool,” or a way to find new prospects. “If youre not committed to philanthropy as an ideal, people will see through that. Its going to be difficult for you as an advisor to be intimately involved in the process,” he says.

Often, when clients suggest different charities theyre interested in donating to, many planners feel its a good idea to research the organization. “I think its critical to know the charity youre working with,” says Rathbun. If not already familiar with a charity, he will look into its old tax returns and learn as much as he can about the organization.

Philips also takes this approach. “If I dont know anything about them, Ill go see them,” he says.

Philips will contact the charity and tell them he is working with a client who is interested in making a donation. “They roll out the red carpet for me.”

When visiting the charity, Philips tells them he wants to learn all about them so he can feel confident enough to recommend this charity to his client, as well as other clients. “Youve got to see it before you recommend it,” he says.

“Its important to know these peopleknow what theyre all about,” adds Rathbun.

Another factor planners should consider when investigating a charity is the breakdown between how much actually goes to the cause and how much goes toward administrative expenses.

“You dont want a client giving $250,000 to an organization thats just going to squander it and not use it for the charitable intent,” says Rathbun.

The maximum level of administrative expense acceptable to Rathbun is 15%. “I think thats a well-run charity.”

Philips has a somewhat stricter requirement at 10% of a charitys donation going toward administration. “I want to see 90% going toward the cause, thats my own personal feeling,” he says.

Rather than picking and choosing specific charities for planned giving, Brink has offered clients another solution through the use of a donor-advised fund or family foundation. The benefit of taking this approach is it allows a donor to pass his or her values and beliefs on to the next generation, instead of just leaving a large sum to a particular charity.

“If someone gives a lot of money at their death to a charity, that money is gone,” Brink explains. “If its left in a family foundation, or a supporting organization or a donor-advised fund, the family continues to direct donations year after year for generations to come.”

This method ensures the donor that the next generation of his or her family will be involved with charitable institutions, thus passing on positive values and principals.

Another benefit of this type of arrangement is the donor can name charitable causes and objectives for the foundation or fund, rather than naming specific charities.

“A charity and its leadership is going to change over time,” he says. “Leadership at a church may change, making it more conservative or liberal.”

Naming objectives allows family members to control which charities donations will go to.


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.