When it comes to charitable giving, I'm pleased to say that the pace of change has accelerated. And that's one thing in life that I don't mind if it keeps growing.
It took me the first three decades of my career to help raise $1 billion in charitable giving. But I've done almost as much in the past four years since announcing my bold intention raising $10 billion for charity before I call it a career. I have never been accused of thinking small. Instead of striving for 10% or 20% growth every year, why not shoot for 10x exponential growth to borrow a page from strategy coach Dan Sullivan? I am also very aware that I cannot do this alone. That is why I have called on many professional colleagues to join me in my efforts.
What's Driving the Charitable Giving Boom?
until studies show giving charity and number of donors has declined in recent years due to economic headwinds and geopolitical uncertainty, mostly at the core level. I can assure you that is not the case at the higher end of the wealth spectrum, where most of your customers reside.
There has been a convergence of factors at play, including higher tax rates, record numbers of adults reaching retirement age, general disenchantment with the way government spends our money and more people thinking about the legacy of them since the pandemic took the world by storm. And then there's the unprecedented intergenerational transfer of wealth and the sunset of the generous gift and wealth exemption at the end of 2025. It's not something the average American thinks about, but your customers do—or should.
Philanthropy has long been a part of US tax law for a reason. The government knows that it cannot fund everything for society, so it subsidizes philanthropy to enable non-governmental organizations (NGOs) and successful people to help in areas where the government cannot focus or fund.
Unfortunately, there is a very narrow group of people interested in (and skilled at) philanthropic planning. This is where it comes in.
Some of the smartest people in the planned giving space are aging out of the profession, and I don't see a lot of new talent coming in to replace them. Thanks to the Tax Cuts and Jobs Act of 2017, which significantly increased the gift and estate tax exemptions, we have a “lost generation” of advisors who think only very high net worth people need planning of assets and gifts. understand. But all that will change after 2025 and you need to be ready (more on that in a minute).
How to move the needle
Any counselor in discussion with a family can help them identify the things they care about and facilitate their ability to make an impact. As you get to know your clients better, you are in a great position to help them articulate their belief system and the issues they see in society that they might want to change.
Meanwhile, record numbers of boomers (and boomer business owners) are exiting their businesses. The tax impact of those large liquidity events can be ameliorated or completely erased with proper charitable planning in place.
Real world example
One of our clients, who built a very successful customer service business, was finally ready to hang up his tool belt and sell the company. Thanks to his courage and perseverance, the business had become so large that it became attractive to a national prospector.
In the course of helping our client negotiate a $30 million exit and sale, we identified a portion of his assets that could be transferred in the pre-sale to a charitable trust. Ultimately, we not only achieved a charitable income tax deduction that offset most of the owner's non-charitable sale, but saved him $10 million in long-term capital gains tax (in California). That full $10 million will now provide $400,000 in annual tax-free income to our client's family before it goes to support their charitable wishes. It was a win for our client, a win for the charity — and a big loss for the IRS.
Overcoming obstacles in learning
Someone asked me the other day what I thought were the biggest changes I've seen in the planning profession since I started my career. If nothing else, I've noticed much less patience for comprehensive planning and more and more emphasis on gathering assets under management. We are so busy managing our businesses for growth that we don't take the time to get to know our customers very well. We don't understand them as well as we used to, which makes it harder to dig into what they really want to do with their lives.
Unfortunately, the sub-asset management model doesn't make this as possible as it does for “old school” guys like me who pay actual fees to do scheduled jobs. The same thing happened in the profession of lawyer. As mentioned earlier, the generation of real estate lawyers who were good at complex legal work has largely left the profession. The younger generation has not been encouraged to learn the nuances of complex planning because wealth exclusion has been so high since 2017. There is a huge knowledge gap in both the financial and legal professions. It's shocking how many financial professionals call me and know nothing about what a charitable remainder trust is. If they understand a core donor-advised fund (DAF), they consider themselves competent. Really!?!
I know we're in the Amazon/Netflix economy of convenience, but many advisors are looking for quick fixes and “hacks” when it comes to planned giving. Many advisors tell me they would like to learn more about planned giving, but worry about the loss of income if their clients' assets migrate out of the portfolios they manage and into charitable arms. Again, this is just a lack of education.
The right planned giving tools allow you to keep your client's assets with you for a very long time – all while helping causes they believe in. There are some charitable trusts that can run for two or three generations. Most DAFs can be passed down through the generations. Pooled income funds can work for multiple generations. Charitable lead trusts often last for life and the money is locked in forever. With all these vehicles, you keep a larger amount of money in the family. What most advisors don't realize is that when clients give their money to a charity, you're not necessarily losing money management.
Doing good for your customers while doing good for society. If this sounds promising, then make a commitment this year to incorporate philanthropic planning into your practice. There are many resources online, as well as the American College's Chartered Advisor on Philanthropy Program. Contact me anytime if you want more instructions.
The opportunity of a lifetime doesn't come around often. As you think about your legacy and career, how would you answer the question, “Where were you during the Great Wealth Transfer of the 2020s?” I welcome you to join the 10BC initiative.
Randy A. Fox, CFP, AEPis the founder ofTwo Hawks Consulting LLC. He is a renowned wealth strategist, philanthropic estate planner, educator and speaker.