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Financial Planning > Charitable Giving

A practice niche with untapped potential

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With holiday festivities in full swing, many among the high net worth are planning to make year-end donations to secure a charitable deduction on their income tax returns. But only a tiny percentage of them will entertain a donation that can have a really positive impact: a planned gift funded with life insurance.

A key reason for the low interest is that advisors are failing to bring planned giving strategies to their clients’ attention — gifts that can substantially benefit not only the intended recipients, but also a client’s own retirement and estate planning objectives. Consider the charitable remainder annuity trust or CLAT, one of several techniques explored in the January issue of NU.

By transferring highly appreciated assets to a CLAT, the donor can secure an immediate income tax deduction and carry it over five years of tax returns. Assets sold by the trust for cash can then provide a guaranteed income stream for life to the donor, the monies paid out free of capital gains tax. And if establishing a legacy for heirs is desired, the donor can also set up an irrevocable life insurance trust, the policy proceeds replacing at the donor’s death the assets given to charity.

This is and other strategies explored in my January feature — the charitable lead annuity trust, gifts of life insurance policies, donor-advised funds, among others — can effectively realize planning objectives. And despite higher estate tax exemptions since passage of the 2012 Tax Relief Act, the strategies retain strong appeal for those looking to avoid other taxes — on income, capital gains and dividends — as well as for those motivated chiefly by philanthropic aims.

Planned giving techniques ought to be part of every advisor’s fact-finding when discussing legacy planning goals with clients, particularly during year-end reviews. The fact that only a minority of the wealthy incorporates a charitable component into estate plans — one advisor I interviewed pegs the proportion at 20 percent — suggests that many financial professionals remain ill-equipped in this space.

Some reasons why: a lack of charitable planning expertise and an excessive focus on other aspects of wealth transfer and income distribution planning. Many, too, don’t have the skills with which to motivate the philanthropically inclined to make good on their charitable intentions.

In respect to the last, more advisors would find success in the charitable planning arena if they first approached the organizations — colleges and universities, facilities engaged in medical research, and non-profit organizations devoted to various causes — that potential donors closely identify with.

Enter Scott Keffer, a financial advisor who in 1995 created the Donor Motivation Program to help charities address their planned giving challenges. Topping the list are finding the resources to connect with annual contributors and members about eliciting their interest in making a planned gift; and communicating charitable giving options, from the simple to the complex, with messaging that is straightforward, compelling and inspiring.

Insurance and financial professionals offering these skills can become a trusted source to charities on planned giving development. Over time, says Keffer, these advisors can build a substantial practice serving the charitable space, generating fees both from partnering non-profits and the contributors who become their clients.

Can one specialize solely in planned giving? Advisors I interviewed for the feature are divided on this question, the skeptics noting the often long time-lines needed to devise and implement a wealth transfer plan. Don See of Pass it On Inc. says his average case requires 18 months because of the often weighty — and irrevocable — decisions involved with gifts of substantial sums.

Tom McCleary, an advisor and president of Endow Inc., observes also that many small and mid-size charities don’t have the luxury to focus on planned gifts because of financial limitations. Unlike big institutions that boast an endowment or large budget surplus, small organizations often depend on annual gifts to finance philanthropic objectives and meet day-to-date expenses.

Though the jury may still be out on charitable planning as a practice specialization, this much is clear: The market space offers much untapped potential. Advisors who recognize the opportunities for growth and hone their skills to better cater to those with a philanthropic bent will reap the rewards.


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