How advisors can assist with a strategy that reflects 'what's in people's hearts'
Lydia Potocnik is Vice-President, Director of Philanthropic Advisory Services at BMO Private Wealth. She examines the issue of philanthropy among clients and how an advisor can help them achieve what they want.
Many Canadians want to do more with their money — sharing their wealth, building a legacy and gaining the fulfillment that can be realized through charitable donations and broader philanthropy. The problem is, they don’t always know where to begin.
Helping your clients get there requires a strategy, sound advice and knowing what big questions each individual should consider. It goes far beyond talking about money and instead involves a discussion about issues your client cares deeply about, their personal motivations and even their relationships with family.
While both can be deeply rewarding, there is a difference between charitable giving and philanthropy. We all make charitable gifts from time to time, usually a singular cash or time donation in response to a specific request or impulse that is personally and emotionally driven.
Philanthropy, however, is a lengthy process that involves a long-term, strategic gifting approach, with focus on issues or causes that are directly reflective of an individual’s interests and values. The driving force behind all decisions on philanthropic strategy must consider what’s in people’s hearts.
Both forms of giving can be meaningful and valuable — the challenge lies in how to go about it effectively.
What to say and how to say it
Raising the topic of philanthropy with clients is not as difficult as one might think. Don’t assume that your client isn’t interested — you won’t know if you don’t ask.
You can begin with basic questions like, “Are there any charitable interests you would like to support?” or “Have you supported charities in the past?” Another option is to send your client an agenda that includes “the giving question” in advance of your meeting, allowing them to give the issue some thought ahead of time.
A few other questions to ask could be:
What role has philanthropy played in your family?
What value would philanthropy have for your children and grandchildren?
Do you want to involve your family in your giving?
Are you giving to charity now, and would you like to continue giving after your death?
Have you thought about leaving a gift in your Will to your favourite charity?
What to give and how to give
Your client’s response to the questions above will help determine what form or strategy their giving will require. While tax benefits are often not the main motivation for charitable giving, Canadian tax law does provide many incentives to donors. Using a strategy that can achieve the client’s goals as well as reap the most of those benefits is optimal, especially when tax planning represents an important consideration. There are different tax benefits when gifting property other than cash — securities in-kind, RRSPs/RRIFs, and life insurance, or donating through a corporation instead of personally.
Slightly altering a giving strategy could allow a client to capture significant tax savings, which in turn can enhance their ability to give.
Also consider the annual tax benefits of lifetime giving, the enjoyment of seeing the gifts in action and the ability to create a family legacy through a private foundation or donor-advised fund. If your client wants to pass on certain philanthropic values to their family and to be more focused and intentional with their giving, a private foundation can be an ideal vehicle to accomplish this.
On the other hand, if a client prefers to take a more hands-off approach to their giving, a donor-advised fund may be the better tool to meet their objectives. For entrepreneurs especially, social enterprises can be very exciting — the business is cause-driven, serving the common good by providing safe drinking water, creating jobs for the unemployed or advancing education initiatives, to name a few examples.
Another strategy to consider is “blended giving”. Blended gifts incorporate a structure where you give something now (such as cash, stock or real estate), something later through your Will and perhaps something in between, like life insurance. This strategy provides the greatest opportunity to maximize philanthropic investment while taking into consideration a client’s long-term financial needs. There are tax advantages to giving during one’s lifetime, and similar tax advantages when one leaves a gift in an estate plan.
Giving can also be a major part of a client’s personal estate plan. As your client grows their wealth, they can designate funds for charities as well as for family members. We’ve seen this among both high-net-worth and ultra-high net worth individuals. In the words of Warren Buffet, they want to give their children “enough money so that they would feel they could do anything, but not so much that they could do nothing.”
Deciding where to give and how to go about it
While developing a strategy for philanthropy is important, clients will also want to take the time to choose an issue to which they genuinely want to give their money, time and energy. Without a real passion for the cause, they’re not likely to stay committed.
Doing research about a particular sector or issue is key. As an advisor, you will want to help your client understand what inspires them and find ways to build on that passion. Encouraging your client to reach out to their favourite charity and ask questions about their funding needs is an important part of the philanthropic journey. Sometimes this means making new connections and building long-term relationships so that the real impact of a donation can be more intimately felt by the client and their family.
Charitable giving and philanthropy can provide significant meaning for many, and it’s critical to ask the right questions to identify a client’s philanthropic goals, strategies for meeting them, processes and structures for achieving them, and the measures for success. Philanthropy is a highly personalized undertaking, but a worthy one for every advisor to explore with their clients.