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Engage Your Clients in Legacy Estate Planning

Engage Your Clients in Legacy Estate Planning

How to have a positive billion-dollar impact on the world

There’s an old Chinese Proverb, “a bit of fragrance always clings to the hand that gives roses.” Expressed in another way, when you offer kindness, love or charity, you get something positive in return.

For you tax professionals out there, no, I’m not referring to a tax deduction (although, who doesn’t love a good tax deduction). The idea that doing good for others is beneficial to the giver as well as the receiver is well established–by science. There’s an abundance of scientific research that’s been conducted on the subject of the effects of altruism and charity. There are real and significant health benefits. Even having thoughts about charitable acts can produce a positive impact.

For example, graduate students at Harvard were asked to watch a film about Mother Teresa’s work with the poor and sick in Calcutta. The students showed significant increases in the protective antibody salivary immunoglobulin A(S-IgA) when compared with those watching a more neutral film.

There are also substantial psychological benefits. Elizabeth W. Dunn, PhD, Assistant Professor at the University of British Columbia, has done significant research into the psychology of happiness. In 2008, Dunn, along with a number of her colleagues, published the findings of their research (Spending Money on Others Promotes Happiness, Elizabeth W. Dunn, et al. Science 319, 1687 (2008)). Dunn concluded that, “spending more of one’s income on others predicted greater happiness both cross-sectionally (in a nationally representative survey study) and longitudinally (in a field study of windfall spending).”

That’s good news for those of us in the United States. According to the 2013 World Giving Index, conducted by Charities Aid Foundation using Gallup World Poll data, out of 135 countries, the United States ranked number one based on three different charitable activities–giving money, volunteering time and helping strangers.

However, there’s strong evidence that we as professional advisors need to do more for those individuals and families who have philanthropic potential. Consider the following pieces of data:

  • Charitable bequests in the United States have been consistently in the $22 billion to $25 billion range annually over the past decade.
  • Approximately 10 percent of wills now contain a charitable bequest (up from 8 percent a decade ago). The percentages are higher for wealthier clients, with 25 percent of all estate tax returns claiming a deduction for a charitable bequest. 
  • In 2011, 27 percent of income tax returns included a charitable deduction.
  • From a report conducted by Russell N. James III,  JD, P.h.D., Professor, Texas Tech University, American Charitable Bequest Demographics (1992-2012), among those who reported having a charitable estate plan, only 41 percent actually generated a charitable transfer at death. Thirty percent of those who reported having a charitable plan didn’t generate any post-mortem gifts and also had no surviving spouse.
  • Individuals make the most charitable donations between the ages of 65 and 75.  

This information raises the following two questions:

If 27 percent of the population is actively supporting charitable causes on an annual basis (and it’s probably a higher number than that, but not everyone itemizes their charitable contributions) and those aged 65-75 are very active in charitable giving and estate planning activities simultaneously, why did only 10 percent make a charitable bequest? Did 17 percent of the population make the conscious decision to turn their backs on charity in their wills and trusts, or is something else going on? Did their estate planning advisors ask the right questions?

Of all the unmarried individuals who reported having a plan for charity in their will or trust, 30 percent of them ended up passing nothing to charity on their demise. Since they obviously wanted some amount to go to charity and actually thought they had made arrangements to achieve that goal, what happened? Did they have a charitable bequest in their will but no probate assets when they died? Did the will get contested? Were the documents lost, thereby triggering intestate laws? Were all of these gifts actually contingent gifts and the triggering event never occurred? With over $20 billion in charitable bequests, imagine if we could solve this particular problem and ensure that everyone who wanted to leave something to charity actually did. We could increase charitable giving to the tune of a few billions dollars–every year.

With regards to question number one, professional advisors need to go beyond the simple question of whether or not the client wishes to make a charitable bequest. Find out what charities they would like to support, where their passions lie, the emotional reasons for their philanthropy, whether both spouses share the same desire to support the same charities and their goals for passing on their charitable passions to their children and grandchildren. Introduce clients to the idea of legacy estate planning.

With regards to question number two, if a client desires to leave an amount to charity on their death, consider the alternatives and help them to implement the approach that’s most likely to actually generate a charitable gift based on their circumstances. For example:

  • Consider recommending a client enter into a charitable life estate agreement. This way, there’s a legal agreement (not a probated will) that transfers the property to charity. The emphasis is on making sure the gift occurs, not on the tax advantages. And besides, did anyone really want mom and dad’s house anyway.
  • A charitable remainder trust can provide the client with necessary retirement income while passing on the remainder to charity on the donor’s death via a beneficiary designation (again, as opposed to a bequest through a will). Make sure the CRT is designed and invested conservatively. Again, you’re not recommending the concept for the tax advantages, you’re recommending it because you want to ensure the gift occurs.
  • Use cash value life insurance with a charity as the named beneficiary. The cash value may be used if needed during retirement and the death benefit avoids probate, isn’t subject to will challenges, isn’t public like a will and may even be protected from creditors depending on the state of sale.
  • Name a charity as beneficiary of other non-probate assets, such as annuities, IRAs or qualified plans, but only if the clients expect these assets to not be depleted during their lifetimes.
  • Emphasize the importance of communicating charitable wishes to the extended family. The more people who know what mom and dad wanted to do the better.

If you hit .700 in baseball, you’ll be legendary. If you hit 70 percent of greens in regulation, you’re on your way to being a scratch golfer. On the other hand, if you remember 70 percent of your wedding anniversaries, that may cause some problems. Our point is, we don’t think advisors should accept a 70 percent success rate with charitable bequests. If advisors effectively engage their clients in legacy estate planning, the impact we could have is dramatic. Even if we assume there are legitimate reasons for 20 percent of the bequests not being made, an additional 10 percent would equate to $2.5 billion more charitable contributions annually. Now that’s an impact.


Richard Newman, CPA, PFS, AEP, CAP is founder of Life Audit Professionals, LLC in Boca Raton, Florida. He can be reached at [email protected]

David R. Foster, JD, CLU, ChFC, CAP, FLMI, is an Advanced Sales Attorney with Ash Brokerage in Harrisburg, PA. He may be reached at [email protected].

TAGS: Philanthropy
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