By a long shot, Americans give more money to charities each year than any other nationality. And some 90% of all Americans give to charity, according to a 2008 survey.?
Yet, when it comes time to leave assets for those same charities after death, the number plummets. In a comprehensive study that spanned 11 years, ending in 2006, Professor Russell N. James III found that less than 10% bequeath to charities.
Why the disparity? One is mindset. A potential giver is less likely to donate after death if he or she has children or grandchildren, according to James. The potential donor wants security for his or her family.
But perhaps more significantly, there is a belief among the public that only those with large amounts of cash give to charity upon death. But it doesn't have to be that way. As in life, when the moderate-income American gives $100 a month to his or her favorite charity, the same can be true upon death, but in a lump sum. In fact, small-income donors make up the bulk of total donations. Many clients, no matter their financial situation, have a deep-seated desire to help others -- and a desire to see that help continue after they are gone. By introducing the option of charitable giving as part of our clients' estate planning, we can enable them to do that. There are ways for clients to both provide for family and know the joy of satisfying their charitable intentions.
It can also be to your advantage to introduce your clients to the possibility of legacy giving. Not only are you doing good things for the community and serving your client in a creative way, it can also help to raise your status as a benevolent, trustworthy professional, which can turn into increased business. Just as our firms give to the community because it's the right thing to do, and we see a return in our investment beyond that good feeling, the same can be true if you are known as a professional who offers a positive angle in estate planning. Your professional collateral increases. However, as always, our focus must be on our clients' goals, not our own.
Legacy giving can take many forms. Consider Janet, a breast cancer survivor of modest means. She and her husband, Mike, give $50 a month to the leading breast cancer charity fund, Susan G. Komen for the Cure. Without planning, their monthly gifts will end with their deaths. Given the opportunity, they might like to perpetuate their monthly gifts. There are a number of ways they may go about this. For example, a new life insurance policy on one or both of them, applied for and owned by the charity and funded each year by a gift from Janet and Mike would easily and affordably accomplish their wish. Because the charity owns the policy, their annual gifts to cover the premium are tax-deductible, as long as the charity meets the Internal Revenue Code requirements as a qualified charity. At their death, the charity receives the death benefit tax-free and, if invested properly, it will perpetuate Janet and Mike's monthly gift.
Suppose Mike and Janet's children are grown and financially independent, and they have more than enough retirement assets. If they had existing life insurance coverage, they could name the charity as a beneficiary. Or they could simply give a policy to the charity. Because they would lose control of the policy after the gift was completed, they would in turn receive a tax deduction based on the cash value of the policy.
Imagine yourself describing the options for Janet and Mike about how they can continue to serve as donors after they're gone. They may not be Warren Buffett, with his $30 billion to the Bill and Melinda Gates Foundation, but they are giving back to a charity within their means. The bulk of donations that keep our charities in operation are not from the Buffetts of the world -- they are from the Mikes and Janets.
In fact, author and scholar Arthur C. Brooks says 75% of charitable giving comes from the bottom 90% of donors, and it's the low-income, employed Americans who give the greatest percentage of their income: 4.5%.
The option of incorporating donating into estate planning begins with you, the professional. Here are things to remember:
Ask the client. Many life insurance professionals don't even think to suggest the option of donations when going over estate planning with their clients. Ask them if they currently give, which charities mean the most to them, and how much they give a year.
Debunk. Explain that 75% of giving comes from the bottom 90% of donors. This is not only an option for the wealthy: Clients of moderate means can contribute just as significantly, albeit not as much.
Families can still be provided for. Even with grandchildren on the horizon, a small amount -- even the amount the client currently gives -- can go a long way to help a charity. With the use of life insurance products, existing or not, the client can give to his or her favorite charity deferred, and the impact on the family can be minimal.
Explain that this is a way of giving back in a planned manner. Through careful planning, the client can give more substantial amounts without a change in his or her financial expenses.
Don't do this for yourself. Just as you are encouraging your client to give to that which he or she cares for, do the same yourself. Your job is to serve your clients as individuals. You have made it a policy to adapt estate planning to the individual's financial priorities. This is one more way you can better serve your client. And if you financially benefit, so much the better.
Charles Matt, CFS, is a financial advisor with Sapient Financial Group, a general agency of Massachusetts Mutual Life Insurance Co. (MassMutual). He has served on the board of the Planned Giving Council of San Antonio for 10 years, and was president in 2008. He can be reached at cmatt@finsvcs.com.
Charles Matt is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc., Member SIPC. One Union Square, Suite 300, 10101 Reunion Place, San Antonio, TX 78216. 210.342.4141.
The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Sapient Financial Group representatives are not authorized to give legal or tax advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal tax or legal counsel.
Footnote:
1. "Causes and Correlates of Charitable Giving in Estate Planning: A cross-sectional and longitudinal examination of older adults," Russell James, Ph.D., Department of Housing and Consumer Economics at the University of Georgia, March 2009.
