Close Close
ThinkAdvisor
Ken Nopar

Financial Planning > Charitable Giving

Avoid Year-End Stress: Discuss Charitable Giving With Clients Now

By Ken Nopar

X
Your article was successfully shared with the contacts you provided.

Six years ago, when I wrote a similar column, the financial and charitable worlds were quite different.

The Dow Jones Industrial Average was just over 22,000, the Covid-19 pandemic had not yet arrived, and the number of donor-advised funds totaled 463,000, compared with nearly 1.3 million today. Grants from DAFs to charities have increased from $19 billion back then to $46 billion in 2022, and contributions from donors to DAFs now account for 22% of all gifts to charity.

As we approach the peak giving season, it’s important that advisors engage their clients now in the charitable planning conversation instead of waiting for the last-minute rush.

Philanthropic clients appreciate the interest and the help that advisors can provide since it can help them and the charities they support. 

Most high-net-worth and ultra-high-net-worth clients are aware of the challenges that their favorite charities continue to face as well as frequent world, national and local crises. At the same time, in spite of volatile markets and inflation, they are aware that with the help of their advisors, their own net worth has continued to increase.

As a result, many donors, especially those who have established DAF accounts, have been very generous in their grantmaking. Unfortunately, the recent Giving USA report indicated that the amount of giving dropped last year for only the fourth time in the past 65 years.

Though there are many topics to discuss, here’s a brief list:

1. Giving goals. How much do clients plan to give the rest of the year, in the next few years, and for the foreseeable future? Has their timeframe for giving changed? 

2. What assets should they donate? Do they have highly appreciated stock that they could and should donate? Do they plan on selling a business and donating privately held business interests? Do they have real estate that they no longer want or need?

Do they want to give these at one time to a particular charity, or do they want to contribute to a DAF so they can receive a tax deduction then and make grants from the DAF over time?

3. Foundations vs. DAFs. Should they continue to donate and make grants in the same way that they always have, or are there better or more efficient and impactful ways to give? Is the private foundation that they created years ago still appropriate given the size, expense, or administrative burden?

Many foundations have converted to DAFs over the past 5-10 years, while others have opened complementary DAFs to the foundation. For some clients, foundations are still the ideal option.

4. DAF contributions. If clients have opened a DAF and made numerous or substantial grants from the DAF, should they make additional contributions to their account? Did clients bunch contributions to their DAF several years ago, and is it time to do that again?

5. Are clients interested in reviewing their charitable intentions in their estate plans?

Many donors have slightly or significantly changed their charitable plans and recipients in recent years, and family circumstances may have caused some to change what or how much they leave to charity or to heirs. Are there certain assets that donors may want to leave to charity at death (i.e. IRA) and give others to family members? 

6. Timing. Do some clients feel rushed to send donations at the end of every year? Would it make sense to establish and fund a DAF so they can take their time and send out donations without rushing?

The best charitable giving decisions are often made in advance. Nearly all charities now welcome grants from DAF donors because they arrive throughout the year and not just in December. The donations they receive are in the form of cash, so they do not have to pay any fees for credit card donations or contributions of stock or other assets. Initially, some charities were wary of DAFs but now most welcome them.

7. Opening a DAF. If clients want to establish a DAF account, and especially if they are used to making year-end grants, should they create it now? This would allow them time to recommend grants.

Most DAF sponsors have cutoff dates for opening accounts and sending out grants. Some DAF sponsors allow advisors and donors to set up the accounts in advance and fund them later when they know how much or which assets to contribute.

8. Do clients want to include others in the charitable giving decisions? Initiating the conversation now will help clients determine if or when they want to include children or others later. Many families establish charitable vehicles and then engage their children over the holidays.

9. What you don’t know. Have clients established any charitable vehicles or made any significant donations or commitments without discussing these with their advisors? 

Some clients may not be aware that their advisors can help them or manage the assets in these accounts, and in some cases may be able to transfer these accounts so they are under their management.

10. Paperwork. Are some clients looking for a simple and efficient solution so they do not need to keep track of every tax receipt letter from every charity they support, and would their accountants appreciate this also? 

Discussing charitable planning with clients now will avoid unnecessary year-end stress for the donors, the charities that receive donations, and especially the financial, tax and legal advisors who have to set up the accounts or donate appreciated securities and other illiquid assets. And most importantly, it will help clients achieve their charitable goals and have a significant impact.

Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation (AEF), one of the country’s leading independent donor-advised fund since 1993 with more than $6 billion in assets. AEF works with donors and their wealth, legal and tax advisors in all 50 states. 

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.