You might think you understand philanthropy because many of your clients make charitable donations, says Malcolm Burrows, head of philanthropic advisory services with Scotia Private Client Group, a division of Bank of Nova Scotia in Toronto.
But there is an important difference between “charitable giving” and “philanthropy.” Charitable donations are usually smaller gifts that clients make occasionally and depend on clients’ cash flow. Philanthropy, on the other hand, is a planned donation, or series of donations, that requires financial planning and involves larger assets and the client’s estate.
Philanthropy can be the basis of a worthwhile conversation that deepens the relationships you have with your clients — if you approach the topic in the right way.
Burrows provides three suggestions to help you have a successful discussion on philanthropy:
1. Look for specific client profiles
Two types of clients will generally consider philanthropic giving as a part of their estate plan.
The first, more typical group includes business owners and executives with significant income and assets. These client are usually 50 or older and are comfortable with the idea of distributing their wealth as they are leaving the asset-building stage of their lives. They also often express a desire to give back to their communities and may be involved in local initiatives.
The second group of clients is often overlooked, according to Burrows. These clients are 65 or older; they may be single, widowed or with partners, but they usually don’t have children. These clients have significant assets, which they often give in their entirety to charity.
That second group, Burrows says, is growing.
2. Don’t oversell the tax benefits
Once you have broached the topic of philanthropy, make sure the client is motivated by a sincere interest in giving to a particular cause. If the client regards philanthropy only as a way to avoid paying some taxes on their estate, philanthropy is probably not an appropriate strategy.
“Generally speaking, when you’re giving a gift to charity, you’re not making money,” Burrows says. “It’s better to hold your nose, pay the taxes and move on.”
The amount the client’s beneficiaries would save on taxes, compared with the size of the gift, would not be worthwhile, Burrows says.
3. Discuss potential causes
While clients will generally have an idea of the charity they would like to donate to, you can help by the client focus on a specific area of that cause. This consideration will help your client learn about how the donated money would be used.
Burrows often asks his clients to describe any personal involvement they have in their chosen organization: is there a specific area or department the client would like to support? What is the client’s objective?
Determining the nature of the activity that will benefit from the client’s assets is especially important when the donation is large.
So, if a client tells you that she wants her estate assets to help a cancer charity, help her focus that goal. Does she want to donate to a local cancer society or a particular hospital? Would she prefer that the assets be put toward long-term research or into current programs that provide patient support?