Not everyone fits into this financial life planning mode. Those that are, and have a keen interest in charitable gifting and philanthropy, have a wonderful opportunity to leave a legacy. Regardless of the client, we make it a point of having this discussion with clients. It is not for us to decide what client it is suitable for. Philanthropy is one of the first topics that we discuss with any prospective client. We bring up philanthropy early because it is such a significant part of our own personal and professional lives.
The conversation
I thought this would be a good opportunity to share how we approach the philanthropy conversation with our clients and how we integrate philanthropy into clients’ wider tax and estate plans. Engaging a client on a subject like philanthropy, which is often so near and dear to their hearts, results in a deeper relationship.
Being in my final month with Habitat for Humanity in my community, currently serving as Post President and Chair of the Board of Directors for the two prior years, I have worked with many philanthropic partners and realize the importance of the conversation.
When we want to know more about a client, we always ask them about their charitable donations. We ask about their donations, what charities are really important to them and why, and if they have volunteered, sat on the board, or used the services of that charity. It’s important for to find the emotional connection that they have with that charity.
We have these conversations early in the relationship because philanthropic individuals will normally consider philanthropy to be a significant part of their own lives. Advisors should strive to get as deep, at understanding of their clients, as possible. If an advisor only discovers their client’s philanthropy later in the relationship, they’d be doing a disservice to that client.
Wills and bequests
Our conversations begin with a question about wills. When asking if a client has a will we’ll ask if they have considered making any bequests. If they say they haven’t, the conversation typically turns to other topics. Its not our job to preach about the virtues of charitable giving. If they say they do plan to leave a bequest or have donated to charity, we ask more about the client or prospect’s favourite charities and why they support them. This allows us to open the crucial conversation about how a client or prospect donates to charity.
The method of donation
The method of donation is crucial to how philanthropy fits into financial, estate, and tax planning. We often recommend the donation of securities in kind to charities, rather than cash. That’s because donating a security means the client gets the tax benefit of the value of their donation, without having to realize any capital gains through the sale of that security. Many people, even people who work in finance, do not know about the benefits of donating securities.
Donating securities also dictates the times in which we recommend clients make their donations. Many clients are deadline oriented and like to schedule major donations at certain points in the year. When donating securities, however, we prefer clients make their donations when markets are high, so they can get an equivalent tax benefit from a donation of fewer units.
Capital gains inclusion
Given some of the challenges clients now face due to the Federal Government’s proposed increase in the capital gains inclusion rate, 67% instead of 50% above $250,000 in capital gains, we are starting to have conversations about how philanthropy planning can help.
Many clients are rethinking their donation timelines and considering bigger lump-sum donations before the increase takes effect in late June. It is important to review each client’s situation now, instead of making a haste decision to determine the best course of action for them. We often bring up bequests in these conversations because bequests can help clients and their families save even more on taxes now.
Educated Advisors
It is important that, as Advisors look to grow the philanthropy planning side of their own practices, that they get educated. Courses offered by Knowledge Bureau and the Canadian Association of Gift Planners can help Advisors better understand the nuances of philanthropic tax planning. As they embark on this work, however, it’s crucial that Advisors live some of the philanthropic values they are facilitating for their clients.
The bottomline
We think it’s important to walk the talk. If any Advisor wants to specialize in philanthropic tax planning, it really helps if philanthropy is important to them and they practice what they preach, as mentioned personally above.
It can make the bond a lot more powerful if we share the same values with our clients, and philanthropy is a cherished value for many Canadian families. It’s important to talk about those values, find out how important they are to each family, and it’s important for those families to know that you share those same values in Keeping Life Current.