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Using Tax Reform as a Philanthropy Ice Breaker

Nearly half of investors say they want more from their wealth advisors when it comes to philanthropic planning and guidance.

The philanthropic conversation can be a hard one to start, but this year, advisors have an especially timely way to broach the topic with clients: the passage of the Tax Cuts and Jobs Act.

Americans now contribute nearly half a trillion dollars annually to charitable causes that are near and dear to their hearts, crossing the $400 billion mark for the first time in 2017.With philanthropy increasingly becoming a core aspect of our value system, advisors who tackle the challenges of an ever-changing Tax Code head on to help clients integrate their philanthropic goals into their financial plans can seize a unique opportunity to create a higher level of engagement and improve the client experience.

Key Act Provisions to Discuss

Signed into law on Dec. 22, 2017, the Act made sweeping changes to the Internal Revenue Code that continue to grab headlines. Here’s a brief overview of some key provisions of the Act that impact the charitable giving landscape and that you can bring up with clients to get the philanthopry conversation started:

Increased standard deduction. The Act nearly doubled the standard deduction for individuals from $6,350 in 2017 to $12,000 in 2018. Similarly, for married couples filing jointly, the deduction rose from $12,700 in 2017 to $24,000 in 2018. These substantial increases coupled with new limits on the state and local tax deductions are expected to dramatically reduce the number of taxpayers who itemize deductions.  

Despite this decline, donors with high incomes are less likely to be impacted by the higher standard deductions and will continue to benefit from itemized charitable deductions.

Adjusted gross income (AGI) deductions. Before the Act became effective on Jan. 1, 2018, taxpayers were generally allowed to deduct up to 50 percent of their AGI for charitable contributions. The Act increased this limit to 60 percent of AGI for cash contributions made in taxable years beginning after 2017.

Pease limitation repealed. The Act repealed the "Pease limit," which specified that the total amount of certain otherwise allowable itemized deductions (including charitable contributions) was limited for certain upper income taxpayers (for 2018, the income threshold above which the otherwise allowable itemized deductions are reduced would have been $266,700 for single filers and $320,000 for joint filers).

Best Practices From the Field 

While tax reform can be used as a good opportunity to broach the topic of philanthropy with clients, remember that it's just a starting point, and there's much more to charity than tax concerns. Several best practices can help to make for a more fruitful conversation and deeper relationship. 

Understand the client’s mission and values. While there may be some common themes for charitable giving that loosely span across clients (for example, creating a lasting legacy), the values, personal experiences and sense of responsibility that dictate donations are usually highly personal and not always obvious. The investment in time to fully understand how a client’s experiences, values and motivations shape his priorities will help clients in a meaningful way.     

Encourage clients to hold family meetings. For many clients, philanthropy provides a unique opportunity to engage the next generation of investors. Family meetings on philanthropy offer an opportunity for families to frame multi-generational conversations around values and the importance of giving while building stronger ties. Providing heirs with a meaningful opportunity to shape philanthropic decisions will increase their engagement and financial literacy.  

Have the philanthropy conversation with all clients. Philanthropy isn’t only interesting to clients with millions of dollars to donate. Each client has passions, goals and values that can be enriched through strategic philanthropy with the help of a financial advisor. Wealth management should focus on each investor’s personal priorities and values—his goals and aspirations. Philanthropic giving and impact investing are a reflection of personal values and naturally align with financial goals.

While conversations with HNW clients may focus on different elements or tactics around giving, the rewards of helping clients achieve a higher level of financial fulfillment aren’t asset based.   

Treat strategic philanthropy as a part of continuing education. Becoming and staying fluent on the full spectrum of options for charitable giving and impact investing requires a certain level of commitment. Philanthropy hasn’t traditionally been viewed as a core component to a wealth advisor’s value proposition, but an abundance of resources exist for those willing to seek them out.  

Changes to the law have the potential to impact investors, and advisors should work with clients to proactively address questions and develop a personalized decision-making framework. As with any other aspect of wealth management, planning ahead for philanthropic giving can only open up more options and create greater efficiencies that will make a difference in your clients’ own lives and with those causes close to their hearts.      


This is an adapted version of the author's original article in the October 2018 issue of Trusts & Estates.

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