Warren Buffet, Bill Gates and a host of other billionaires have shown their propensity for philanthropy by signing the Giving Pledge. Those who join this initiative vow to dedicate the majority of their wealth to philanthropic causes. However, you don't have to be a billionaire to subscribe. There are many people out there who are well off and would like to do this. Some of them may even be your clients.
Charitable planning can be a great stepping stone to building a long-term, solid relationship with your clients. Having a conversation with clients about their charitable endeavors goes far beyond a conversation about the tax benefits of this type of planning. Don’t get me wrong, your clients will be very thankful for your assistance in obtaining them additional benefits to help their cause, but the real value will lie in your discussion about their wishes.
When speaking with your clients about charitable planning, you'll learn a lot about them. In many instances, this conversation will open your eyes to their deeply held values. You very well may learn things about your client that you had never known, even if you have had a long-standing relationship with them. Conversations like these will elevate you to trusted advisor status.
High-net-worth clients who are looking to give back, fulfill a philanthropic mission, provide a legacy and/or educate the next generation on the importance of being charitable are great candidates to start a discussion with. You already know their financial situation, and now that you are aware of their propensity to give, there are many options to present.
We will outline a few of the more popular strategies that can be used by your clients for charitable planning:
1. Beneficiary Designations on IRAs, Qualified Plan and Life Insurance: This is an easy way to name a charity and provide them with funds from your assets. This will allow your client's charity to inherit assets. Depending on your client’s family situation, it may make sense to have a charity named as a contingent beneficiary too.
2. Qualified Charitable Distributions: This works well for clients who are at the stage of taking Required Minimum Distributions from their IRAs. Assuming they meet certain hurdles, they can set up a qualified charitable distribution (QCD) where the distribution is payable to the charity. This will allow the client to make a charitable contribution while keeping the distribution out of their taxable income.
3. Investment Planning: There are several opportunities, from a planning perspective, that could help your clients’ charitable goals. They can look to donate low-basis, highly appreciated stock to a charitable organization or donor-advised fund if they are looking to rebalance their portfolio. Rather than selling the stock and incurring the large capital gain, by donating it, they would eliminate the capital gain. Donor-advised funds have become an extremely popular tool that allows the donor tax breaks while supporting their charitable endeavors and including the next generation in their philanthropic goals.
4. Estate Planning: There are several estate planning techniques that could be used to have your client satisfy their philanthropic goals while providing them with benefits, too. You may be able to assist them in creating a plan that will result in no estate tax by making a gift to a charitable organization or donor-advised fund.
Establishing, maintaining and deepening client relationships are what the CPA profession is all about, and there's no better way to do it than to help your clients create a legacy that will last beyond their lifetime.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.
Lawrence Sprung CFP® is the President and Founder of Mitlin Financial, Inc. He entered the financial industry in 1996 and continues to be inspired and energized by the challenge of helping his clients achieve and even surpass their financial goals.
Mitlin Financial, Inc. is an SEC Registered Investment Advisor (RIA) that prides itself on...