How advisors can help close the charitable giving gap

Canadians' philanthropic planning has to match up with heightened awareness of need to give back

How advisors can help close the charitable giving gap

Given all the tragedy and misfortune that the year has brought, it’s no surprise that Canadians are more aware of the need to lend a helping hand. But as recent statistics from Investment Planning Counsel illustrate, there’s a frustrating disjoint between awareness and action.

In a recent study of Canadian investors, IPC found nearly 20% believe charitable giving is more important now than when the COVID-19 pandemic began. Despite that, only 14% were completely prepared to engage in philanthropic legacy planning.

Part of that has to do with people understandably being a little bit selfish this year. Another IPC study in October revealed that 80% of Canadian investors have had to re-evaluate their priorities since the start of the pandemic; among them, nearly 50% shared three pressing concerns: stability of income, short-term cash flows, and the health of their retirement savings.

While those urgent needs have pushed philanthropy to the back seat, there are other factors contributing to a longer-term shortfall in giving. “There's a bit of a lack of prioritization in creating a charitable giving plan as part of the financial planning process,” said Sam Febbraro, executive vice president of Advisor Services at IPC. “We found that 19% of investors want to actually look at their donations and planned giving during their year-end reviews, but sometimes advisors may not put that as the highest level of importance.”

Compounding the problem is the logistical limitations that lockdowns have imposed. Because of physical distancing measures, in-person meetings between advisors and clients to discuss financial plans and estate plans have been curtailed. But that has been partly offset by a broad embrace of technology, with virtual meetings, phone calls, and other alternative means of communication being used to pick up the slack.

“A lot of advisors are focusing more on things like life planning and financial planning,” Febbraro added. “It's an advisor's role to help investors with their priorities and lay out a plan to reach their goals, and this is especially true with the charitable giving side of the financial planning process.”

As Canadians become more inclined to take stock of what truly matters to them, Febbraro said it falls on advisors to direct charitable giving conversations in a deliberate and purposeful fashion. The first step, he suggested, would be to do a preliminary exploration of the client’s current involvement with charities – as a donor, a volunteer, or a board member – and look into their motivations as possible indicators of the convictions they hold.

“Another question would be: how do they decide how much to give each year and how do they decide which charities to support?” he said. “In the future, do you plan on becoming more or less involved, or change the amount that you're willing to donate to charities? Do you want to donate throughout the year, or would you want to do it at the end of the year?”

Aside from settling the issues of “how much” and “how often,” advisors must also discuss “how” clients want to do their giving. A crucial node in the conversation tree would be whether the client wants to give “with warm hands or with cold hands,” with each choice opening up a different menu of planning options.

“We’d also want to clarify who is involved in making the charitable giving decision,” Febbraro added. “Are you including your children? People might not think about it, but it can be an important piece in intergenerational planning, even with adult children involved … you want to make sure people are aware of what’s happening and avoid any surprises with respect to plans for the family wealth.”

The questions shouldn’t end with the initial planning process, either. Once a donation has been made, advisors would do well to check in with clients to see how they feel: frustration with the process, a realization that they didn’t give enough, and any other manifestation of regret is an opportunity to correct the course and ensure alignment between their values and goals.

The majority of people elect to do their giving through a public foundation, but some would prefer to have more control and engagement with the process. In such cases, setting up a private foundation might be worth considering, though Febbraro stressed that it should be done with a clear understanding of what their objectives and purpose are, as well as an appreciation of the start-up costs, administrative costs, and professional support clients would have to take on.

From a tax-planning standpoint, the typical approach of giving cash would entitle donors to a 15% federal tax credit on the first $200 they give, and 29% on the amounts past that; additional donation tax credits may also be claimed on a province-by-province basis. To maximize the impact of their donation dollars, some clients may consider combining donation amounts across different years in order to benefit from a bigger tax break.

“A client and their spouse or common-law partner could also consider pooling their donation receipts, with the tax credit claim going to the one who’s in the higher tax bracket,” Febbraro said. Donating securities like shares of a stock or mutual fund, he added, would help clients sidestep the tax hit that comes with selling the securities and donating the cash proceeds.

With respect to donating with “cold hands,” clients can choose to capture their philanthropic intentions in their will. Donations can be made in the form of cash, properties, and securities, among other vehicles, which would provide a tax credit that offsets some of the payable components on the distribution of the estate.

“Another option would be to buy a life insurance policy and name the charity as the owner and beneficiary,” Febbraro said, which would allow the death benefit to bypass the estate entirely and go directly to the organization.

While the pandemic may have disrupted people’s charitable-giving activities, that shouldn’t necessarily stop them from doing what they can. For its part, IPC has an annual tradition of having a team of advisors and staff go down to the Honduras and give time, energy, and financial support to local communities. That’s not possible this year, but the need on the ground is greater than ever as the impact of the pandemic has been compounded by devastation left by multiple hurricanes.

“We're raising money to go towards re-establishing production and irrigation systems for their agriculture, access to clean water and sanitation, as well as health services and food relief,” Febbraro said. “Even though this might be a tough time for many people, especially financially, every charity or charitable organization can use support … you can still donate your time and volunteer, and you can help with fundraising events or create awareness. It's just as impactful and just as meaningful.”


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