Last week, a financial advisor called to discuss her older client whose husband had recently died. The widow had plenty of assets and no children, and the advisor wanted some input about how to talk with her client about leaving money to charity. Fortunately, the client is still sharp and interested and will be able to make wise decisions with the advisor.
An example of when it’s too late occurred a dozen years ago when I was working for a philanthropic advisory firm. A financial advisor asked the firm to work with a 92-year-old client to identify which charities she should name as charitable beneficiaries of her estate plan. Unfortunately, because the client was unable to process the information and make decisions, she simply asked her advisor to pick out a few charities for her to make bequests.
The advisor realized he should have initiated the conversation years earlier so the client could have been more engaged and pleased with the outcome.
Situations like these happen often and will occur more frequently in the future because baby boomers are aging, more clients are divorced or widowed, and fewer people are getting married or having children.
Establish a baseline plan
It is almost always best to begin these conversations early with clients — regardless of whether they have a spouse, partner or children — and to establish an initial baseline plan that can be easily reviewed and amended.
Change is inevitable in every client’s life, so when there is a death, divorce or challenges with children, at least the advisor and client do not need to build a plan from scratch, especially when the client is older.
Though a small number of financial advisors still defer to estate planning attorneys to initiate these conversations, advisors often know their clients better and understand which charitable planning options may be most appropriate. Knowing the clients’ philanthropic intent enables the advisors to appropriately invest the assets that may be set aside for charitable giving. Ideally, clients are best served when their financial advisor, attorney and tax advisor confer with the client to plan both their short- and long-term charitable giving.
Conversation starters
When talking with older clients about their charitable planning, there are many topics to review. These are often among the most relevant:
- What is their timeframe for giving? Do they want to give during their lifetime, at death, for a certain period after death, or a combination?
- If after death, do they want their heirs to continue to give or do they want to set up a disposition plan so the giving continues without the heirs’ involvement? For how long do they want to give after death (i.e., for 10 to 20 years or in perpetuity)? Advisors and donors typically select a shorter time period if the amount is insignificant.
- How many charities do they wish to support?
- Does it make sense to give directly to the charities or to establish a donor-advised fund (DAF), private foundation, charitable lead or remainder trust, or combination of these?
- If they have a foundation, does it make sense to keep it or convert it to a DAF? Many older couples have recently converted their foundations to DAF accounts upon the recommendation of their advisors because their foundations had become an administrative burden, were expensive, or their kids were not interested in continuing the foundations. Others have split their foundations into separate DAFs for their children, while some DAF donors have split their DAFs into separate ones, especially if children have different interests.
- Do clients want to be thanked and welcomed by charities during their lifetime for giving, even if giving will not be until at or after death? Would this enable them to feel a greater sense of pride and fulfillment by engaging with a charity before death? Charities welcome the opportunity to say thank you, and most are sensitive about not soliciting for additional gifts if asked to not do so.
- Do clients want to give publicly or anonymously? One DAF donor recently stated that she did not want her friends to know about her generosity and wealth during her lifetime, but she didn’t care if they knew after her death. (Only DAFs can guarantee anonymity).
- Are older clients utilizing qualified charitable distributions to satisfy all or part of their required minimum distributions from their IRA to qualified charities? (DAFs and private foundations are not eligible.)
- Would it be appropriate for clients to name charities or their DAF as the charitable beneficiaries of their IRA to avoid significant taxes that individual beneficiaries would incur?
- How much do clients wish to give to charity? This may seem to be an obvious question, but with investments, inflation, relationships with children and societal needs, this amount or percentage of assets to be given away can change over time.
A bigger impact
Many clients, even those with significant assets, do not adequately plan their charitable giving for after death. Even if not asked by their clients for help, advisors should proactively engage the clients in this conversation.
Additional Reading: Selecting DAF Sponsors for Seniors: 12 Considerations
Having this discussion before older clients are unable to understand and process the options is ideal, since at a certain point, these important decisions are postponed or never take place. Establishing a charitable plan in advance can enable clients to establish a charitable legacy and be pleased that they will leave an impact on important causes, their favorite charities and their heirs.
Ken Nopar is the vice president and senior philanthropic advisor for AEF, a leading independent donor-advised fund since 1993 with $6 billion in assets under oversight and 14,000 DAFs. AEF works closely with its donors’ wealth, legal and tax advisors in all 50 states. Nopar can be reached at kennopar@aefonline.org.
