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Tips for ”the Talk“

Three checklists to help ensure productive client conversations around philanthropy, and point to some traps for the unwary.

Wealth advisors know that high-net-worth clients typically look to them for guidance around their charitable giving. That’s why conversations around philanthropy are increasingly commonplace, especially during year-end client meetings.

Three Traps for the Unwary Advisory

However, there’s a big difference between “having a conversation” and “having a productive conversation.” Our experience managing more than 1,400 private foundation clients suggests that when it comes to advising their philanthropic clients, there are three distinct traps for the unwary advisor:

  • Sticking to dollars and cents. Wealth advisors sometimes assume that when a client asks for philanthropic advice, they’re primarily interested in tax savings (income tax reduction, sheltering capital gains, avoiding estate taxes, etc.). But what really interests your clients about philanthropy—and what they really want from you—may have nothing to do with money. Your clients may want you to serve as a resource, providing logistical and strategic support for their charitable objectives. 
  • Making it seasonal. If you’re only discussing philanthropy during pumpkin-spice latte season, you may not be doing it at the right time or with sufficient frequency. Yes, interest in philanthropic giving typically spikes during year-end, but some clients want to discuss giving earlier in the year when there’s more time to plan. And many clients want to discuss their charitable giving with you on a regular basis—not just at a year-end meeting.
  • Going it alone. When clients have complex needs, or their philanthropy represents a substantial investment, it makes sense to confer with specialist in charitable vehicles. A recent Foundation Source survey revealed that advisors may have misplaced confidence in their knowledge of PFs or donor-advised funds, which could affect the quality of their counsel.      

Understanding Client Motivations

Although wealth advisors are accustomed to thinking about the tax savings or estate planning aspects of charitable giving, clients typically approach the topic from a personal perspective. Their primary motivations may include establishing a permanent legacy, uniting their family through shared philanthropic activity and/or giving back to the community where they made their wealth. You might therefore approach the subject by asking what they’d like to achieve with their philanthropy rather than starting the conversation with a technical presentation.

After you’ve opened this dialogue, the following questions can help determine whether your client’s philanthropic aspirations merit a more in-depth discussion of the available options. 

Client Checklist: Philanthropic Aspirations

  • How important is charitable involvement to you at this point in your life?
  • Are there issues or problems facing society that have also touched your family?
  • Are there personal goals that you’ve set for yourself that philanthropic giving could accomplish?
  • What causes or organizations do you currently support, and why?
  • Are there charitable causes or specific organizations that you would like to support but haven’t had the opportunity or the time?
  • How would you like to be remembered? What kind of legacy do you want to leave?
  • Do you want to engage your family in your philanthropy, or do you envision it as more of a solo project? 

Assisting Clients Who Are Actively Considering a Charitable Vehicle

At a certain level of wealth, clients are ready to move from checkbook philanthropy to a more formal giving vehicle. Not only does a giving vehicle provide a more organized and formalized platform from which to conduct their giving, it also provides important tax-planning benefits. The following questions will help you assess your client’s current and prospective needs so you can determine which charitable vehicle might be the best fit. 

Client Checklist: Current and Prospective Needs

  • What motivates you to establish a charitable vehicle?
  • Are there certain charitable vehicles that you’re considering?
  • Are you planning to include your family in your philanthropy?
  • How long do you want your philanthropic legacy to continue? Do you want your family to retain control over your charitable assets for one generation, two generations or in perpetuity?
  • Is anonymity a must-have? For some donations? All donations?
  • How important is control over your investments? Over grant decisions?
  • Do you want to be able to reimburse charitable expenses?
  • Would you like to hire staff or compensate family members for their philanthropic work?
  • Will you want to go beyond traditional gifting to creative forms of support, such as loans, international giving, scholarships, awards and donations made directly to individuals and families in need?
  • Do you want to run your own charitable programs, like a coat drive?
  • Are you planning any major gifts or multiyear commitments that might require a formal agreement with the grantee?
  • How would you like to fund your charitable vehicle, both initially and in the future? What level of funds would you like to start with?
  • What types of assets do you plan to donate? Do you have highly appreciated personal property or real estate that you’d like to contribute?
  • Will your initial choice of charitable vehicle be an irrevocable decision? Might future events inspire you to change your mind and move funds from this charitable vehicle to another?

Note: If your client is weighing a choice between a PF and a DAF, you should be mindful of the fact that while the funds in a PF can always be transferred to a DAF at some later date, it’s all but impossible to convert a DAF into a PF. Your advice is therefore critically important to ensure they make the right choice.

Supporting Clients with Established PFs

Clients with established PFs might appear to have no further need for counsel around their philanthropic needs. Appearances, however, can be deceiving. Even clients who have had their PFs up and running for years may have concerns and challenges that you could help address. By asking the following questions around what’s working well and what’s not satisfactory, you can engage your clients around their PFs and assess their needs.

Client Checklist: Assessing PF Needs

  • What motivated you to start your PF? To what extent is the PF living up to your original vision?
  • How do you currently administer your PF? Which parts of running a PF go easily and which are more onerous or time-consuming?
  • Do you spend more time on PF administration than you’d like to? Can you keep up with everything that needs to be done?
  • When you need guidance or have a question, to whom do you turn to talk about funding, compliance, mission, governance and grantmaking?
  • Are you proactively undertaking tax-planning measures to help you qualify for a reduced excise tax rate of 1 percent?
  • What measures have you taken to minimize the risk of compliance issues and their potential for reputational harm?
  • How does your family engage with your PF? To what degree would you like them to be more involved?
  • Are you satisfied with the results you’re getting from your grantmaking? Do you feel like you’re making a real difference?
  • What are the ways in which you see your PF changing in the next 5 years? Do you anticipate any of the following events? 
    › Change of PF leadership like the next generation assuming leadership
    › Influx of assets to endowment from sale of business or inheritance
    › Retirement of trusted advisor or key staff member
    › Geographic dispersion of family members
  • How do you connect with other like-minded funders and stay on top of trends and best practices in philanthropy? Would you like to network with other PFs like yours?
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