While progressing through their careers as attorneys, Alma and Brent Nickels have developed a routine of generosity. With the means and opportunities to support causes that move them and to respond to requests for support, they give away thousands of dollars each year. And they like doing it.
Now, as they both approach retirement, Alma and Brent are worried that their approach to giving might not be the best one. They’re concerned that, when their incomes decline after retirement, they won’t be able to continue giving. They also have realized they might not have demonstrated to their two adult children how much they value philanthropy.
With these realizations came broader questions: Has their giving had the greatest possible impact? Have they earned the best tax benefits from their philanthropy? Should they have had a plan for their giving?
Fortunately, the Nickelses had a key asset at their disposal: a wealth advisor who recognized that all the couple’s concerns could be addressed by answering “Yes” to that last question. Their advisor helped them forge that plan and guided them to a strategy that would get the most out of their gifts and create an opportunity for long-term impact.
Following is a family giving plan that you can share with your charitably minded clients, broken into four broad action areas: Plan, Delegate, Execute and Evaluate.
Plan
Step 1: Identify charitable goals.
Before they identify organizations to support, encourage your clients to think about the issues or causes that matter most to them. In what areas would they like to have an impact? What concerns affect or move them personally? This will help them define the purpose and objectives of their philanthropy. This also helps them recognize that each family member might want to support different causes. This discussion can help the family identify its values and priorities.
As helpful as it can be, this kind of conversation can seem daunting. Help the family overcome concerns by helping it frame the discussion around questions such as these:
- What do we hope to achieve through our philanthropy?
- What kind of family legacy do we want to continue?
- What has been our most meaningful charitable gift? What made it meaningful?
- What do we each remember as our first experience in giving?
Step 2: Research charities.
Once the family has a sense of the issues and causes they would like to support, they should take time to research organizations that address them, identifying ones that are reputable, efficient, and have a clear mission that aligns with their goals. Action steps should include:
- Review the financial status of the organization. Just because an organization addresses a cause, that doesn’t mean contributions to it will be eligible for tax deductions. Your client should always make sure the organization meets the specific requirements defined by the IRS.
- Review the history of using funds for intended purposes.
- Consider visiting the organization to see its mission in action.
Delegate
Step 3: Establish roles and responsibilities.
For everyone in the family to feel engaged and involved – and to reduce the chances for family tension in the future – everyone should agree to defined roles in the giving plan. Urge them to follow these steps:
- Assign roles (for example, donation management or impact evaluation).
- Foster effective communication and collaboration among the various roles.
- Ensure everyone understands and commits to their respective roles.
- Check in annually to review the giving plan and its impact, and to ensure everyone feels comfortable in their roles and are doing their jobs.
- Get guidance from external voices and experts, starting with their wealth advisor, of course, but also including philanthropic advisors, community leaders, and others who can offer informed insights.
Step 4: Make it official.
To ensure that everyone understands and agrees to the family giving plan, encourage the family to put it in writing, and urge everyone to sign and commit to it to create accountability. Make sure everyone gets a copy.
Execute
Step 5: Determine a giving budget.
Now it’s time to start talking about money. Help the family determine how much money, assets, or time they want to give to charity each year. Urge them to consider household income, expenses, and overall financial goals to determine a reasonable amount.
- Decide whether the family would prefer to create a year-by-year budget or multi-year budget.
- Help to ensure the budget is realistic and sustainable.
- Consider all of the family’s financial resources, available time for volunteer work, and social obligations.
Step 6: Plan the giving strategy.
Once the family has identified charities to support and a realistic and sustainable budget, help them decide which assets to give and the best approach to giving.
- Consider gifts of cash, public securities, complex assets, and other wealth.
- Explain the various vehicles for giving – donor-advised funds, charitable remainder trusts, charitable lead trusts, pooled-income funds, charitable gift annuities, endowments, direct gifts, etc. – outlining how each option fits with the family’s goals and objectives.
Step 7: Maximize giving impact.
Help your clients find opportunities to maximize the impact of their donations, such as by leveraging employers’ matching gifts or finding out about matching challenge grants within nonprofit organizations.
Step 8: Review and adjust the plan.
Evaluate
Each year, sit down with your clients and review the giving plan to ensure it remains aligned with their charitable goals, makes the most impact, and aligns with the family’s overall wealth management plan. Adjust budgets and strategies as needed to ensure the family is making the most of its charitable contributions, meeting its goals for impact, and continuing to work collaboratively on its plan.
Planning for ongoing impact
With a clear plan, a family can ensure that their charitable giving not only delivers the kind of impact that the family wants to have, but it can also better ensure that a legacy of giving will continue into future generations. Meanwhile, you can feel confident that, by playing a role in this planning, you are solidifying your relationship with your clients and playing a role in their full financial lives.
Case Study: Family Giving Plan
As their wealth advisor helped Alma and Brent Nickels forge their family giving plan, she also guided them to a specific giving vehicle that let them continue giving at previous levels and enjoy a considerable tax benefit.
As mentioned in the accompanying story, the Nickelses are both attorneys who will retire this year. In recent years they have donated about $25,000 to charity annually, usually by writing checks in reaction to requests for donations. As they have approached retirement, they have worried that they won’t be able to continue to give at the same level during retirement.
While their adjusted gross income is $500,000 this year, it will drop to $40,000 per year in retirement. Plus, they face significant capital gains in their investment accounts.
Fortunately, their wealth advisor identified a tool that can help them continue to give: a donor-advised fund (DAF).
With a DAF, the Nickelses can prefund their retirement giving while they are still earning a relatively high income. By bunching six years of $25,000 donations into a single $150,000 gift through the transfer of appreciated assets in-kind into a DAF, the couple can receive the full $150,000 itemized tax deduction in the year the donation was made since it was under the AGI threshold of $150,000 (500,000 x 30%) for non-cash charitable contributions. Also, by transferring appreciated assets to their DAF instead of selling them, they avoid the capital gains tax.
