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Charitable Planning Conversations with Clients in Down Markets

Philanthropic clients may be looking for ideas or solutions so they can continue to be generous with their giving now and later.

The 2020 Lilly School of Philanthropy study indicated that 90% of wealthy people donated to charity in the previous year. During the crises of the past few years, most clients maintained, and many increased, their giving in response to significant needs. Most donor-advised fund (DAF) sponsors reported that their donors increased their grants substantially, as evidenced by American Endowment Foundation donors increasing their grants by 30% and 50% the past two years and Fidelity Charitable reporting that their donors increased their grants by 41% from pre-pandemic levels.

Down Markets and Other Issues

Some clients are naturally quite concerned at this time about today’s markets and other current issues, including inflation, Ukraine and Covid. Their favorite charities fear that contributions during a year like this may drop because some of their donors may not have the ability to donate as much as they previously have.

However, clients with the means to do so again will strive to provide badly needed support to the charities that are most important to them and society. Numerous studies recently and over the years by Bank of America, BNY Mellon and other groups have clearly demonstrated that donors are generous for many reasons, but the tax benefits of giving are low on the list. These studies have shown that donors feel fortunate about their wealth and want to give back, feel connected to a cause or charity and want to have an impact now and in the future. Of course, donors want to receive the tax benefits that derive from giving, but that isn’t the primary reason they give.

Because it’s important to clients that they’re able to maintain the level of their giving, they should discuss with their advisors how they can best do this. It’s comforting to clients who’ve already created DAFs and private foundations (PFs) that they have charitable assets already set aside and invested so they can continue to send grants, even if their income or investments decrease.

Questions About Giving

If clients haven’t yet reached out to them, advisors should proactively engage their charitably-minded clients because these clients may be looking for ideas or solutions so they can continue to be generous with their giving now and later. Most advisors already have told clients that qualified charitable distributions allow those aged 70½ and older to transfer up to $100,000 tax-free each year from their traditional individual retirement accounts directly to a qualified charity, though not to a DAF or PF.  When meeting with clients, some of the usual questions should be asked, including:  

  1. Who will be involved in the giving process?
  2. How much do they want to give?
  3. When do they want to give? Now, later, or both?
  4. Why is giving important to them?
  5. How should they give, directly or through a DAF or PF?
  6. Do they know where they want to give? Have their giving priorities changed lately?

Assets to Give

Additionally, this may be the perfect time to discuss which assets may be ideal to give because some clients may be unaware of what they can give. Many clients today still have highly appreciated publicly-traded securities that they can contribute, and some of these may be held outside of the control of their advisors. Others have the ability to donate illiquid assets that have increased in value such as real estate, cryptocurrency, privately held stock or limited partnership interests. Though his client’s investment in Bitcoin had dropped quite a bit lately, an advisor just called after determining that there was still a significant gain and it was the best asset to donate to the client’s DAF so he could continue to be generous in his grants to various charities.

As was the case with this client, some clients may not want to donate significant assets at one time directly to individual charities, and instead may wish to establish DAF accounts and donate to them. This allows them to receive the tax deduction upfront and then make grants now and over time to deserving charities.

Continued Giving

It’s uncomfortable for clients to tell their grantees that their annual donation will be less than usual, so they’re eager to avoid that scenario. Advisors can help their clients continue to be generous during these times.

By proactively discussing charitable giving with clients, advisors can deepen these relationships and talk about a positive subject that’s important to the clients instead of the decline in the markets. This conversation helps not just the clients but also the charities that they care deeply about. 

Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation (AEF) donor-advised fund.

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