EXPERT VIEW: The "Third Pillar" Of Effective Year-End Tax Planning - Part 2

Susan Dauber

2 October 2013

This is the second part of a two-part article looking at tax planning and philanthropy issues. It is written by Susan Dauber, philanthropic advisor with Strategic Philanthropy, the advisory firm headquartered in Chicago, IL, with offices in Northern California. We hope readers find these views stimulating and invite people to respond. To view the first part, see here.

How much and what do clients want to know?

Although the case for frequent monitoring of organizations receiving donations should be clear, clients differ in their taste for details, and in how involved they want to be in selecting and monitoring their philanthropic investments. In some cases, a donor might be heavily involved in vetting organizations receiving their funds, while in other cases a donor might cede that function to others, for example, a philanthropic advisor experienced in doing the due diligence necessary to protect donor intent.

Questions about the financial health of organizations, their capacity to absorb the donor’s contribution and to use it effectively, and the like, are only the beginning of the oversight that should be routinely performed.

Critical questions to ask include:

-- How involved do you want to be in planning, implementing and monitoring your giving?

-- Given your other commitments, how much time and involvement do you want to devote to your philanthropic endeavors?

-- Are you satisfied with the information that you are receiving from the organizations you are currently supporting? What else would you like to see?

While advisors may not be in a position to, or want to, undertake assessments of organizations with or on behalf of a client, raising the questions helps to make an important topic “top of mind”.

Where appropriate, advisors would do well to link clients to resources or experts who can provide the necessary information or support. Being able to point a client in the right direction, to protect his or her philanthropic investment, is an important part of supporting a client’s financial interests and deepening relationships.

Looking to the future

Understanding how the client is thinking about future giving, in the short‐, medium‐, and long-term, is also necessary. Starting with the long‐term, does the client have an estate plan that includes a philanthropic component? If not, this could be an extremely costly omission, since it leaves heirs and trustees the difficult task of trying to intuit donor intent.

In addition, it is important for clients to think about charitable gifts in as strategic a way as they do their financial investments. Talk with clients about longer term plans; integration of lifetime and legacy giving, and possible exit strategies for philanthropic investments that prove unsatisfactory (or that accomplish their goals and are no longer necessary). Would inclusion of a philanthropic advisor on the client‐centered team be advantageous? Such a partner can help both advisors and clients produce an overall strategy for giving and benchmarking progress in client priority areas.

In addition to focusing on the issues and organizations that might be aligned with client interests, it should also be noted that advisors are well‐positioned to respond to changes that might suggest new giving vehicles. For example, if a client‘s family giving might now include children or grandchildren, advisors can discuss the range of giving vehicles that might support their wishes. Some families involve their children in grantmaking by setting up Donor Advised Funds for them, allowing them to learn about grantmaking and budgeting. For others, a family foundation might be a more appropriate vehicle.

Additional possibilities that might differentiate giving from one year to another include multi‐year gifts, one time significant gifts, donating appreciated assets, and other avenues of giving that may be very specific to a particular client need at a particular time. But again, in order to know that a demand for something like that might exist; advisors need to ask the kinds of questions that might surface those new dynamics.

The value of integrated wealth management

In all cases, better understanding how clients want to give, how much information they want about their giving, and how they want their giving to impact the world, creates opportunities for enhanced client service and a more comprehensive overall strategy. Because situations change ‐in the client’s world, in the issue areas that are supported by philanthropic giving, and also in the organizations that live and die in those issue areas, the fourth quarter is the perfect time to take stock of each of these movable pieces. Such conversations demonstrate an advisor’s depth and capacity to anticipate and respond to a related range of client needs. Integrating philanthropy with tax, investment, and legal planning provides clients with better information and a more comprehensive set of tools for making sound financial and philanthropic decisions.

Understanding a client’s philanthropic intent provides another avenue for knowing a client better and for guiding them more intelligently in making decisions across a wide spectrum of tax, investment, and philanthropic issues. The end result for both is a more trusting, closer professional relationship.