If any financial advisors were watching the Obama speech to Congress this week — and I bet there were more than a few — the promised return to pre-Bush tax rates and policies should have set off a few bells about the use of charitable giving in estate planning. The return of estate taxes and higher rates for those making above $250,000 can give the financial planner an opportunity to pay a call on clients and say, “Let’s take a look again at your estate plan, because there are some ‘new’ opportunities.”
Most financial planners I know do not bring the charitable gift into discussions with clients about their estate plan. It’s usually about the children and the family in financial terms, but rarely are the family values that most people cherish discussed. The reasoning is fairly sound, from the financial planner’s point of view — “I’m an expert in financial matters, not values, and I don’t know where to go once I open the discussion about values.” Fair enough, but now these values can make a difference in how you set up their estate plans, so isn’t it about time to either gain some knowledge or bring in someone who can help create a space for such a discussion?
An example: You’ve got a client — man and woman in their 60′s — who want to leave a sizeable portion of their estate to their grandchildren. No, their child’s not a spendthrift, but they didn’t want to complicate one generation’s tax consequences, so with your help, they set up a trust for the grandkids with a very reputable bank. It was easy because there weren’t estate taxes to get in the way of a straight transfer. Now there are, so what can you do?
When you sit down with them, ask them the questions you might not have asked before (and which they didn’t express to you the first time) — “Do you have any charities you care about?” They might say ”Yes!” So, now what?
Well, you can set up that trust with the charity as a charitable lead trust, and get some money up front to the charity (very much needed these days) while getting some great tax benefits for your client while still transferring the funds to the grandkids some time in the future. And you can still keep it managed by the very reputable bank you set it up with the first time (I make no comment about banks right now, they’ve got enough people shooting at them).
But you can do a bit more, and make your clients even happier, by suggesting to the charity – if they can wait for a bigger bang down the road — that they take the income from the lead trust and set up a fund in the family’s name. The income from that fund, which will grow over the next decade by the infusion of new income every year, can be directed to specific programs the family cares about or to the charity’s general fund.
Not all charities can set up such funds, for lots of reasons, size and sophistication of the board being among them, but working with the right counselors, you can find a charity that will set up a fund within its endowment for the first charity, and use the income from the charitable lead trust to initially start the fund and keep it growing. Some of these second charities — usually community foundations, but there are others as well — may provide some sort of match to establish such secondary funds for other charities, so your client’s can have a double (triple!) win.
This is just one example, but there are a number of others that make sense for all kinds of financial planning clients right now. Charitable gift and estate planning requires some expertise, and there are some excellent ones to talk to. Some have ties to specific charities, some do not. Just make sure they can work with you to walk you and your clients through any difficulties or roadblocks.
It’s time to start these dialogues now, even in tough times, because changes are coming fast. Better to open the discussion with clients now then have them turn to you and say, “How come you didn’t talk to me when this was beginning?”