The Planning Skill Set Prized by the Wealthiest Clients

"Another big question is, does the client want to be able to change the beneficiary at some point?" Heffernen suggested. "Are they giving to a charity because their parents always did, or is this a cause they truly support? How much research have they done into their preferred causes? How much does the tax picture matter to this client?"

Regarding the taxation topic, Heffernen explained, it can be very beneficial to have the client think through potential liquidity events they expect in the future that could affect their overall tax burden.

"For example, is there some big special dividend you are expecting in the next few years, and if so, how can we incorporate that event into our giving strategy?" Heffernen asked. "Maybe you have a client who is paid on a retainer basis and they know that next year or maybe the year after, they are going to be generating millions of dollars in income. How can we plan for this?"

Chang said another important line of questioning is whether a client is motivated to give during their lifetime or if they prefer testamentary giving. Increasingly, he said, donors are giving while they are still alive, in the interest of personally seeing the benefits afforded to the causes they support.

"They want to see the mission of the charity advance while they are alive, and they believe they can make a tangible difference in their communities today," Change explained. "Others say they derive personal satisfaction and enjoyment from the act of giving, and a significant number say they want to give back to their community now out of a sense of gratitude."

Growth of DAFs Is Significant

As Nopar observed, hundreds of thousands of clients have opened donor-advised fund (DAF) accounts in the past decade.

The main advantages of DAFs are ease of use, ability to accept donations of both liquid and illiquid assets, and greater tax benefits than private foundations, Nopar said.

In his experience, most charities today recognize that they receive larger donations from DAF donors than from those who donate cash or publicly traded stock. This is because the donors already received a tax deduction when they donated to the DAF and thus have a large pool of assets that can only be granted to charitable organizations.

One key emerging trend the panel highlighted is the donation of appreciated real estate assets to a DAF, as this provides a substantial degree of tax efficiency.

Two Other Popular Giving Vehicles

In closing the webinar, Heffernen spotlighted two other popular giving vehicles — charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).

A CRT allows a donor to gift assets to a trust in return for an income stream that is paid to a non-charitable beneficiary for an express period. A qualified charity then receives the remainder of the trust assets at the end of the pre-defined period.

"When is this useful? When there is a desire to receive an income stream while obtaining an income tax deduction," Heffernen suggested. "It also may help to avoid capital gains taxes on highly appreciated assets, depending on the circumstances."

One thing to note is while the charitable remainder beneficiary can be changed, the trust is generally irrevocable. For this and many other reasons, it is important for advisors, clients and legal resources to diligently construct and review trust documents.

Clients using a CLT can expect a different experience. With a CLT, they also gift assets to a trust, but it is the qualified charity that receives an income stream for an express period. The remainder interest then passes to non-charitable beneficiaries at the end of the pre-defined period.

The CLT is basically an estate-free vehicle that can transfer wealth to family members at reduced or no gift and estate tax cost, Heffernen explained, depending on the specifics.

Credit: Adobe Stock