From the advisor's point of view, you would like to help clients be generous while not tying up their assets in case they are needed later. Here are several strategies you can suggest. (Photo: Shutterstock)
As clients get older, they often become more popular. They are collecting retirement income from a few sources. Their children left the nest years ago, and their expenses may have gone down. They get involved with a local charity, support the mission and want to do even more. The charity is thrilled. Where can you come into the picture?
Charities primarily look for deep-pocketed donors. Your client has assets. Sometimes the rationale is simple: “You have money. We need money. Therefore, you should give your money to us.”
Fortunately, your client has a range of ways they can help the charity. As an advisor, you don't want them to give away most of their assets. Their heirs might prefer to be on the receiving end. And circumstances might change down the road — they might need the money for long-term care expenses.
From the advisor's point of view, you would like to help them be generous while not tying up their assets in case they are needed later. Here are several strategies you can suggest:
1. Pledging. No, your client isn't joining a fraternity or sorority. They are committing to a substantial gift, paid off in specified amounts over several years. Three years is a good example. They are able to gradually fund a larger gift without needing to sell securities all at once.
2. IRA beneficiary. Naming the charity as a beneficiary on one of their several IRA accounts. The money still belongs to your client in case it's needed. Money goes to the charity when they pass away. Your client has the opportunity to change beneficiaries again in the future.
3. Fully paid-up life insurance. Many people buy smaller face value life insurance policies when they enter the workforce. Decades later, they are paid up or accumulate significant cash value. As smaller policies, they probably represent only a minor amount of their overall wealth. They could gift the policy to a charity. They could make the charity the beneficiary and while retaining control.
4. Low-cost basis stock. They worked at the firm since graduation and got into the company stock purchase plan. They reinvested dividends. Decades have passed. Their cost basis is measured in pennies. They might donate some of that appreciated stock to the charity now. If they sold it, the portion taxable as a capital gain would be significant.
5. Donating real estate. Your client has a holiday cottage they no longer use. It becomes another asset that can be donated to a charity, which will turn around and sell it. Your clients gets a tax deduction, the charity handles the logistics of selling.
6. Charitable gift annuities. The charity likely has a development (or advancement) department that can provide customized solutions for donors. Charitable gift annuities are one example. The donor makes a gift. There's some tax deductibility involved. The donor receives a lifetime income.
7. Charitable remainder trusts. Here's another vehicle allowing a person to make a charitable contribution, have some tax deductibility and collect an income during their lifetime. This might be done in tandem with a life insurance trust.
Your client has a desire to help. As their advisor, you want to help them accomplish their objective as well as look out for their best interests by providing a menu of options. You aren't giving tax advice. You are demonstrating the value you bring to the relationship.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” can be found on Amazon.
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Bryce Sanders
Bryce Sanders, president of Perceptive Business Solutions Inc., has provided training for the financial services industry on high-net-worth client acquisition since 2001. He trains financial professionals on how to identify prospects within the wealthiest 2%-5% of their market, where to meet and socialize with them, how to talk with wealthy people and develop personal relationships, and how to transform wealthy friends into clients. Bryce spent 14 years with a major financial services firm as a successful financial advisor, two years as a district sales manager and four years as a home office manager. He developed personal relationships within the HNW community through his past involvement as a Trustee of the James A. Michener Art Museum, Board of Associates for the Bucks County Chapter of the Fox Chase Cancer Center, Board of Trustees for Stevens Institute of Technology and as a church lector. Bryce has been published in American City Business Journals, Barrons, InsuranceNewsNet, BenefitsPro, The Register, MDRT Round the Table, MDRT Blog, accountingweb.com, Advisorpedia and Horsesmouth.com. In Canada, his articles have appeared in Wealth Professional. He is the author of the book “Captivating the Wealthy Investor.”
