It is essential that advisors, their firms, asset managers and other industry participants balance establishing best practices with current clients while shifting service and product strategies to the future profile of the high net worth demographic. .
Recent data from Cerulli Associates projects that $124 trillion of wealth will be transferred to the next generation over the next quarter century. That's great, but only 15% of that money ($18 trillion) will go to charity. While $18 trillion is a ton of money, the amount could be much higher if the recipients of that wealth knew more about what they could do with it. The same goes for their advisors.
This is the time of year when many advisors talk about philanthropy. They dutifully remind clients that they can give away appreciated shares or open a donor-advised fund (DAF). But these efforts to help with planned giving come with about as much enthusiasm as “get started on your tax planning” or “don't forget to schedule a colonoscopy if you're over 40.”
Their hearts are not in it.
A good friend recently spoke to a group of estate planning attorneys, financial advisors and fundraisers. He gave a very basic speech on charitable giving: “Give appreciated stock, don't give money,” he advised. He received a standing ovation and was then mobbed by people who wanted to talk to him.
I was happy for my friend, but it struck me that, as a profession, we need to do a much better job of educating our clients (and ourselves) about the importance of charitable giving. By the way, helping your clients create a planned giving strategy won't migrate assets out of their accounts. It will not hurt your AUM.
Another issue is that the typical planned giving officer remains in their job only 18 months in any particular charity. It's very difficult to have continuity of giving and build donor relationships (and trust) when there is constant turnover, thin staff, limited bonus potential, and burnout among giving officers seeking donations. This is where it comes in.
Education is the key
When it comes to charitable giving, we have a huge education gap. The public is uninformed. Planned giving professionals are often undertrained and uninformed. The legal and financial community is uninformed. “Write me a check” is not a strategy. And the higher up the income ladder you go, the more problematic this becomes. The wealthier people are, the smaller their allocation of cash assets. They don't want to write checks from a bank account. They want more sophisticated tax-efficient and hassle-free asset transfer strategies where they can make a big impact with their gift and protect their family.
The mass media, which supposedly educates the public, is not helping the perception of large-scale charitable giving as a “tax dodge” for the super-rich.
Nvidia CEO Jensen Huang and Tesla/SpaceX founder Elon Musk have been taken to task for abusing DAFs to allegedly shield billions of dollars in wealth from taxes while not giving that money to charity. Let me be clear: that money is outside their assets. Like me explained to WealthManagement.com readers, billionaires like Musk can't use that money for any purpose since it's in a DAF. And it's making its way to charitable causes. Just remember gifts of that size cannot be transferred all at once and all to the same recipient without dire consequences.
The New York Times recently wrote a long article convicting Huang, his wife and his lawyers of using a DAF to avoid $8 billion in estate taxes. Here are some things that may be confusing for your customers.
NYT: “The tax system works differently for the wealthiest Americans. Creative lawyers have pieced together obscure regulations, court decisions, and narrow rulings to help the wealthy pass their estates.”
In reality, the tax system is the same for all of us.
NYT: “One mechanism is the intentionally defective grantor trust (IDGT) — or, as estate planners have dubbed it: 'I Dig It.' It uses a complicated borrowing strategy to circumvent a federal gift tax limit. The tax gift tax prevents rich people from giving all their money to their heirs before they die to avoid estate tax.
In reality, you want to transfer assets that are expected to grow from your wealth now. This is just good, thoughtful planning. If Nvidia had been a failure, then intentionally damaging the provider's trust would have been ineffective as a strategy. The risk is also on the customer.
NYT: “By dividing ownership among family members, wealthy Americans can also claim that the assets transferred to the trust are worth less than their former market value. Trump's family did this with his father's New York City real estate portfolio in the 1990s, cutting his gift and estate tax bills. In 2017, Trump's Treasury Department withdrew proposed regulations that would have reduced these deductions.
In reality, taking a deduction on an asset because you don't have 100% ownership or control is also well-settled law. No one would pay full price for something they have no say in.
NYT: “Nvidia CEO Jensen Huang, who uses several estate tax-cutting strategies, including an 'I Dig It.' He has also funded something called a donor-advised fund, which reduces his eventual estate tax bill even if that money never goes to charity. He is on pace to avoid more than $8 billion in wealth taxes — or about a quarter of what the United States collects each year in taxes.”
In reality, that money has already been given to charity through a DAF. It may not have reached the end-user charity yet, but the funds will get there when Huang and his family identify causes they believe in and want to support. Meanwhile, the Huang family does not receive any benefit from these funds because they are outside the property. $8 billion in estate taxes means roughly a $20 billion gift based on a 40% tax rate. Why should this make anyone angry?
Tidal Wave of Boomer Business Owners Selling
Another option for advisors is to help all budding business owners invest some of their windfall efficiently in charitable causes. 1960 was the peak year of the Baby Boom, so that means a record number of people are turning 65 in 2025, this coming year. Retiring Boomer business owners will sell or bequeath Assets worth $10 trillion over the next two decades – from more than 12 million privately owned businesses.
Randy A. Fox, CFP, AEPis the founder ofTwo Hawks Family Office Services. He is a renowned wealth strategist, philanthropic estate planner, educator and speaker.