By Maurie Cashman
Philanthropy is something that many consider as a part of their ownership transition plan. A few weeks ago I participated in a continuing education program held at the Scheman Center and sponsored by the Iowa State University Foundation. I am going to borrow from a couple of presentations that provided information on a discussion that I like to have with my clients â€“ philanthropic giving.
According to the U.S. Trust Study and a study by The Stelter Company, professional advisors agree that philanthropy plays an important role in planning.
The U.S. Trust Study found of clients:
Nearly all want subject to be brought up early in the ownership transition discussion.
One-third want an advisor to bring up the topic at their first meeting.
Most want the advisor to bring up philanthropy within the first several meetings, when they expect the advisor to fully understand them.
Clients want advisors to adopt a more balanced approach, focusing on their personal passions/charitable interests and technical topics.
Less than half (41 percent) are fully satisfied with their philanthropic conversations.
73 percent still believe philanthropic conversations are important to have with their advisor.
82 percent still feel that their advisor plays an important role, with 33 percent saying their advisor plays a very important role in their charitable giving.
40 percent agree that discussing philanthropy with an advisor has deepened their relationship.
Owners are concerned about encouraging future generations in philanthropy.
45 percent feel it is important to involve children and grandchildren in discussions.
6 percent of high net worth (â€œHNWâ€) individuals would reduce their giving if the estate tax were eliminated.
45 percent of HNW individuals would reduce their giving if income tax deductions for donations were eliminated.
HNW individual consider their advisors to be at least somewhat knowledgeable about structured giving vehicles.
Reasons Why Donors Donâ€™t Give or Hesitate to Give
They feel their gift will not be used wisely by the nonprofit (30 percent), their lack of knowledge about or connection to a charity (24) percent) and fear of increased donation requests from others (17 percent).
9 percent say the topic has been broached by an advisor, but not yet discussed in detail, primarily because the advisor wasnâ€™t familiar with their personal life/values.
Impact of Philanthropic Discussions
Knowing that an advisor has personal philanthropic experience and knowledge would factor into advisor selection and would enhance the credibility of philanthropic advice provided.
A fraction of clients say that their advisor has suggested including future generations in giving.
Encouraging future generations to be philanthropic is one of the most important reasons they give.
Major Reasons Clients Decide to Make a Planned Gift
95% Have personal connection to specific NP
60% Have no obvious heirs
54% Want the income tax deduction
54% Want to avoid estate taxes
53% Want to leave legacy for themselves/loved one
46% Have been asked by a NP to make a planned gift
Relationships With Nonprofits Matter
63% Already have relationships and consider them valuable
20% Don’t have these relationships now but would consider them valuable
12% No, don’t think this would be a benefit to me
5% Not sure
It is important to understand that fewer than 40 percent of adults understand the term planned giving and less than 10 percent will make a planned gift in their lifetime. This discussion should be part of any ownership transition planning process.
ENDOW IOWA In Iowa (and I suspect many other states) there is a special program to multiply the impact of planned giving:
Donors can be eligible for â€“ 25% tax credit for contribution â€“ in addition to federal deduction (can carry forward for up to 5 years)
There is a limit each year, per taxpayer and also statewide
Tax credit paperwork submitted; awarded on a first come-first served basis (there is a limit on funding
Must be held at a qualified community foundation
Iowa charitable causes
No more than 5% annual spending/granting policy
With Endow Iowa, donations to Community Foundation endowments cost donors less.
Gifts of Grain
Real estate (farmland, homes, vacant property)
Closely held corporations
Charitable IRA Rollover (if approved by federal and â€œcoupledâ€ by Iowa)
$6,000,000 in credits approved for 2014
$3,800,000 remaining this year
$1,000,000+ of credits used this year were for 2013 gifts that were submitted after the credits were depleted last year
Philanthropic giving should be a part of any discussion regarding ownership transition planning. Many business owners are not aware of the benefits that can be associated with this and the opportunity to leave a legacy, which is often high on the list of an ownerâ€™s stated objectives when discussing the transition of their business ownership. We discuss this with our planning clients and try to partner with financial advisors that share our values regarding this and are knowledgeable about the best way to structure giving. It is an important factor in allowing an owner to transition ownership of their business on THEIR terms.