Nearly 75 percent of high-net-worth individuals consider charity to be an important consideration in their financial and estate planning, according to a survey conducted in 2013 by U.S. Trust. This sounds like good news for charities, but the data also highlights a breakdown in action by professional advisors that can derail those good intentions. Only […]
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Nearly 75 percent of high-net-worth individuals consider charity to be an important consideration in their financial and estate planning, according to a survey conducted in 2013 by U.S. Trust. This sounds like good news for charities, but the data also highlights a breakdown in action by professional advisors that can derail those good intentions. Only about half of poll respondents reported having charitable conversations with their advisors, leaving a large margin of high-net-worth clients with an important goal that their advisors are not helping them to meet.
Sometimes charity is overlooked during planning because clients and advisors have to overcome both factual and psychological stumbling blocks.
What keeps advisors from having this important conversation?
• Focus on the Technical. Even in long-term client relationships, the advisor may not have had many conversations about the client’s values and charitable interests. Some advisors focus more on the technical aspects of the planning, making it hard to move into more values-based discussions.
• Lack of Knowledge. Some advisors lack extensive training on charitable-planning techniques. Others may have learned about charitable planning at some point, but have not used their knowledge frequently enough in practice to be comfortable starting that conversation now.
• Hesitation to Engage Others. Charitable planning often requires advisors to engage with the whole family rather than just their client. This may concern some advisors seeking to have clear boundaries around who they represent in those interactions.
Oftentimes, high-net worth families put off their charitable planning due to concerns that can be surpassed with proper planning and discernment.
• Fears of the Unknown. Some fear that they might outlive their money, causing them to hesitate in taking action. Others worry they will leave their heirs with less than they intend. In reality, charitable deductions can often offset the cost of estate taxes. When planned properly, this can lead to charitable gifts being included in an estate plan without a significant (or any) reduction to what is received by heirs.
• Loss of Control. Clients sometimes feel uncertainty over what nonprofits they want to support. They do not want to choose to support an organization and then be unable to change it if their interests change. Most donors find it reassuring when asked to identify their giving interests and document the story of their life experiences as part of their estate and legacy planning process. This oftentimes leads to the development of a flexible giving plan that fits their unique characteristics and yet can be easily changed over time without needing to restructure a will.
• Family Complexity. Each client has a unique family dynamic that can sometimes make it difficult to start a conversation about giving. Through the facilitation of a family meeting, multiple generations have the opportunity to come together to connect to their shared values. Through a series of exercises, family members can identify and document those values and how they connect to their lives. In addition, the introduction of charitable tools that allow them to give together as a family gives them reassurance that they can strengthen those values now and into future generations.
To get started, we recommend partnering with a chartered advisor in philanthropy (CAP) to conduct discernment conversations with your client or family that identifies what is important to them. From there, you can share best practices for incorporating charity into their plan, which will help to address any concerns about longevity, cost, control, nonprofit uncertainty, and tax benefits.
Family wealth and legacy planning, in the words of Tom Rogerson from Wilmington Trust, requires an integrated approach that allows clients to protect and grow their money, prepares money for their family, and prepares their family for money. Philanthropy is a key factor for success in this work, because it provides a way for the family to connect around their values and work together to achieve impact.