Identifying clients who are inclined to give

“Typically, advice and financial planning is about accumulation, preservation, and, eventually, transfer of assets to family,” says Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group. “Charitable giving is an entirely different way of thinking about planning.”

There’s a key distinction, for example, between everyday charitable giving and exceptional charitable gifts or philanthropy, Burrows says. The former usually involves individuals giving out of cash flow — donations involving relatively modest amounts. The latter, however, involves individuals making larger, significant gifts out of assets, or net worth.

“With exceptional donations, there’s going to be all kinds of questions around structuring [for tax and estate planning and other purposes] that aren’t present with giving $100 or attending a charity golf tournament,” Burrows says.

Providing this sort of structural advice around charitable giving is vital, to be sure. But, in the larger picture, the real value of providing charitable giving advice comes from cementing the relationship with the client.

“It deepens the relationship, and helps to build a hedge around the client,” says Tim Cestnick, president and CEO of Toronto-based WaterStreet Group Inc. “If you’re not going to talk to your client about philanthropy, somebody else probably will at some point.”

Advisors may be uncomfortable raising the subject of charitable giving, sometimes due to a lack of training in the area, or a feeling that it will put clients on the spot regarding their level of charitable activity, experts suggest. However, there are many natural opportunities to raise the topic in regular conversations regarding a client’s goals and intentions.

“A lot of advisors are aware their clients are giving on some level — they might see [a donation receipt on] their client’s tax return, for example,” says Brad Offman, vice president of strategic philanthropy at Mackenzie Financial Corp. “I like the conversation starter, ‘Tell me about your charitable giving. I saw you made a donation.’ People don’t usually give to charities at random — usually there’s a reason. It’s a great way, if nothing else, to learn more about your clients.”

Individuals develop intentions to become charitable at different points in their lives, and for a variety of different reasons. As advisors, it’s useful to watch for meaningful events in your client’s life that might cause him or her to become interested in becoming philanthropic, experts suggest.

“One of the major triggers for giving is loss of a loved one, a spouse in particular, but sometimes parents,” Burrows says. “Also, an inheritance: it creates a desire to memorialize, to give a significant gift, to mark a life.”

Many of these issues related to charitable giving are integral to estate planning, and the decision of what kind of legacy an individual wants to leave.

Some individuals — singles, couples without children, for example — might be more inclined to leave part or all of their estate to charity rather than to extended family members. Clients whose wealth is much larger than family needs, or whose any children are grown and fully self-sufficient, or those who have strong ties to community or a place of worship, might be interested in including charitable giving in financial or estate plans.

“For some, it’s deep-rooted altruism, deep-rooted faith,” Burrows says. “Clients describe charitable giving as stewardship — their money is not actually theirs, it’s something they’re stewarding for maximum benefit for others.”

Of course, charitable giving often arises as a strategy to mitigate an anticipated large tax bill if, say, a business is to be sold, or as part of an estate strategy, to address the tax due on the deemed disposition of assets on death. However, because any such strategy usually involves donating a much larger amount than the amount of the anticipated tax bill, there must be a desire on the part of the individual to make a charitable gift.

“You’re going to be richer if you don’t give it away,” Burrows says. “So there must be some sort of moral disposition to help others [on the part of the donor].”

This is the first article in a three-part series on charitable giving.

On Wednesday: Recognizing the right charitable strategies for your clients.