Now is one of the most critical times in recent history to discuss charitable planning with clients. Fortunately, wealthy patrons continue to make substantial charitable donations. However, the number of households giving to charity has fallen from two thirds at the beginning of the 21st century to just one and a half 20 years later.
While total giving has increased from $450 million in 2019 to $499 million in 2019, 2023 US reporting showed that in 2022, for only the fourth time in the last 65 years, donations fell from the year before. The reduction was 10% when adjusted for inflation.
So why is this such a critical time to talk to customers? For two main reasons:
- With markets near record highs and the threat of recession and low inflation rates, most high net worth clients should feel confident that they have a lot to give.
- Many charities are desperate for funding because there is still a great need among the people and missions they support, and fewer donors are giving.
Some clients have traditionally given to charity or their donor-advised funds or private foundations by the end of the year. Increasingly, however, they are not waiting and are giving at the time that will maximize their charitable giving and deductions. Because many investments have risen significantly, advisors and clients may consider selling some that have appreciated significantly to rebalance portfolios. Rather than paying significant capital gains taxes immediately after selling them, this can be an ideal time to donate these to avoid taxes and receive a significant tax deduction.
Considering today's world and national events, some customers may feel uncertain about the future. Advisors can assure them that they will have plenty of wealth for themselves and their families, and by donating directly to charity or creating a charitable vehicle now, they can make a significant impact both now and in the future.
Although advisors should talk to all clients, here are just a few types of clients who may benefit the most:
Baby Boomers
Many rich kids think they have already given enough gifts to their children or want to limit what they will give them. Some feel that their children have successful careers and do not need to leave them much. Others may wonder what legacy they will leave behind, and creating a charity can instill a sense of accomplishment. Many clients nearing retirement set up and fund a DAF to get significant tax deductions early on, enabling them to make grants during retirement. Others make qualified charitable distributions from their charitable retirement accounts (though not to DAFs or PFs) to meet their required minimum distributions and avoid taxes on them.
Millennial
Fewer millennials have gotten into the habit of giving. This may be because not as many millennials attend religious services as in the past, and the standard deduction is now higher than before. Lots of volunteers, but it's essential that they start giving, even in lower amounts, because their donations will grow over time. More millennials are opening DAF accounts through their advisors, at work or on their own because they are so easy to use and they only receive a tax confirmation letter from the DAF sponsor. Creating a giving plan early on is essential, especially for those just starting to accumulate wealth.
Clients without children
The birthrate in this country has continued to fall, and people are marrying later, while many others never do. As a result, many clients who do not have children will have to decide what to do with their assets later in life and after death, because they often do not want to leave their assets to distant family members. Most want to avoid significant taxes and therefore want to donate their wealth to charity directly or first through DAFs. Without the expense of raising children or the need to leave them a substantial sum, this group often decides that giving to charity is the best life-and-death option.
Business owners
Companies want to be good citizens in their communities, and increasingly, they understand the importance of engaging their employees in their philanthropic efforts. Although some have offered matching gift programs and encouraged volunteerism, many companies have formalized giving grants in recent years to attract and retain employees. Moreover, many firms know that they may have had record profits while there is a great need here and abroad. Company executives have established corporate DAFs or their own DAF accounts when they have received large bonuses or substantial compensation. The time to start this conversation is at the beginning of the year because, often, business owners wait until the end of the year to realize they've had a banner year. By then, it's usually too late to start a program. Establishing and funding a corporate DAF during good years can enable the company to provide consistent amounts during less successful years.
Holding charity planning discussions is beneficial for clients, their families, the charities they support and the advisers themselves. Many clients are able to make a positive impact. Because many of them have significant wealth, they can begin their philanthropic journey or expand it if they started years ago.
Ken Nopar is Director of Philanthropic Practice Management for the American Relief Foundation (AEF). one of the nation's leading independent donor-advised sponsors since 1993 with $7 billion in assets. AEF expands philanthropy by partnering with firms and financial advisors in the financial services industry.