Morningstar Column: How to Create and Implement a Charitable Giving Plan
By Phuong Luong, CFP
This column originally appeared on Morningstar.com on July, 12, 2023.
This article is part of a series providing a framework for incorporating sustainable investing into your advisory practice.
Charitable giving can cut across all aspects of financial planning. Here’s how advisors can support clients’ giving goals.
Charitable giving is an extensive subtopic within most estate planning courses for financial advisors. While many advisors may feel prepared to help clients with giving at the end of their lives, they may miss opportunities to work with clients who want to give across their lifetime. As a financial planner, I work with clients across income and wealth spectra who also have a range of giving goals. Most of my clients donate to organizations they care about, send cash to loved ones in need, or have a goal to give in the future if they don’t yet have the capacity now.
When done throughout one’s life, charitable planning can cut across all aspects of financial planning—from cash flow management to tax, investment, retirement, and estate planning. How can advisors support clients’ giving goals of any size and across their lifetimes? We can look to the financial planning process for guidance.
The Value of a Giving Plan
Understanding a client’s life and financial goals is a foundational step in the financial planning process and an opportunity for advisors to learn if your client has an active or future interest in giving. Some clients may value creating a giving plan to incorporate into their financial plan. Like a financial plan, a giving plan is a road map where the client defines and tracks progress on their giving goals. A giving plan may also intersect with the estate plan if there are end-of-life gifts planned.
Learning a client’s motivations for giving may lead to meaningful conversations that deepen your advisor-client relationships. Often, my clients donate to organizations they have had a direct connection with, such as hospitals or schools, or to focus areas they care about, such as environmental protection, politics, and access to healthcare. Or rather than describing their giving goals as philanthropy, donations, or charity, some of my clients refer to these efforts as redistributing, moving, transferring, returning, supporting, or contributing—intentional terminology that signifies equal status between sender and receiver and deference to the experiences and expertise of recipients.
The process of creating or reviewing a giving plan is also an opportunity to understand better the motivations behind a client’s giving as well as expectations that may affect their overall financial planning. For example, some of my clients have set an intention to right wrongs that have directly or indirectly led to wealth accumulation within their families. These clients use their giving as a tool for justice by contributing funds directly to affected communities without restrictions on how the funds are used. For my clients, the process of creating a giving plan was a valuable experience that clarified not just their giving goals but also their life planning and investment goals—which informed my work as well for the purpose of developing and implementing each client’s financial plan and investment policy.
How to Create a Giving Plan
Similar to the development of the financial plan and Investment Policy Statement, creating a giving plan may not be a linear process but an iterative one that you and the client can return to on a regular basis or as their priorities change. Advisors can support clients in creating their first giving plan. For example, I’ve supported clients in developing giving plans if the source of their giving is income. Many of my clients with significant assets earmarked for giving, such as $75,000 or more per year, work with independent philanthropic consultants, also known as donor advisors or giving coaches, to create their first giving plans. Clients typically update these giving plans annually with their consultant, on their own, or with their advisor.
I spoke with several giving coaches to understand their process for creating giving plans with clients and to gather their advice on how advisors can support this process. My clients who work with giving coaches start by deciding on the causes and the recipients. They then set goals around the amounts and timing of the contributions. I’ve found that clients who work with giving coaches feel more confident in their giving and are more ready for the next step—which is working with their financial advisor to confirm the amounts, timing, and sources of the transfers before implementation.
Sarah DeLuca is a money and philanthropic coach for individuals and families who have the desire to redistribute wealth. She uses a giving plan template and redistribution calculator that she makes available for download on her website. She also regularly hosts webinars for individuals who want to create a giving plan. DeLuca thinks of the giving plan holistically and advises her clients to include “all gifts such as mutual aid gifts, political giving, and funds in Donor Advised Funds (DAFs), so you can see all of that in one place and where it’s coming from.”
A giving plan typically includes the following sections:
Causes: A list of causes that are important to the client;
Recipients: The organization(s) or individual(s) where they’d like to transfer funds;
Amounts: How much the client would like to contribute to each;
Timing: An ideal time frame for the transfer(s), and
Sources: The accounts or income sources funds will come from.
Choosing Causes
When DeLuca starts working with a client, they undergo a guided exercise to envision the impact and future they want to work toward. DeLuca explained: “From the vision, we create categories for the giving plan. We list their current giving and where they’re spending time to see if that matches the vision and note any differences. Then we map how to achieve the vision with their giving, knowing that their giving is only one part of how they can achieve this goal.” Other activities that can contribute to the client’s vision outside of monetary giving, include activism, collaborating with friends and family, and volunteer and professional activities.
Jennifer Near is a philanthropic and organizational consultant and supports clients in aligning their work with grassroots and community leaders. Near helps clients start their first giving plan by asking them to define their values. “Values are often the foundation for determining the timeline for giving, the pace, how much to balance a desire for financial returns and how much to redistribute through their giving,” Near explains.
Choosing Recipients
To help choose recipients, Near asks clients where they have existing relationships with organizations. Then she helps clients focus on the organizations that align with their values. If clients are looking for additional recipients, then Near recommends them based on their values.
I also spoke with Leila Zainab, a philanthropic advisor and money coach for individuals, cohorts, and small private foundations. Zainab maintains relationships with nonprofit partners to understand their areas of need and often acts as a bridge between nonprofits and donors. “I ask clients what issue areas they’re interested in supporting, and I can tell them what’s needed now and where to mobilize it.” Once the values and issue areas are outlined, Zainab extracts themes and drafts an action plan that includes a list of recipients, including organizations and individuals within the donor’s community.
Zainab has also coached wealthy clients through difficult emotions that may arise when giving to friends in need of financial support. Zainab explained, “Often, a wealthy donor is scared of losing the relationship and may be ashamed of being seen as a rich person. I realized I needed to get coaching skills because I see this again and again.” To acquire coaching skills, Zainab trained with Coaching for Healing, Justice, and Liberation.
Determining Amounts to Give
Danielle West is a donor advisor who focuses on leadership development for individuals and families with direct access to move at least $1 million toward grassroots organizations working for gender, racial, and economic justice. I asked West how she helps clients decide on amounts to contribute. If the client does not have a figure in mind, she’ll suggest an amount to start the conversation, with the goal of helping them determine an amount that is meaningful to them without feeling overextended. She also guides clients in engaging their networks to potentially exponentially increase the amount they can give collectively. West shared: “I help clients draw family maps. I ask what it could look like to talk to each person. Then we role-play the asks.”
Determining the Timing of Giving
Determining a timeline for giving can include many factors, such as the client’s sources of giving, their level of comfort, and the needs of recipients. If the client is unsure and has the capacity and flexibility to give from existing assets, then the giving coaches I spoke with advised communicating with recipients to learn their preferred timing. West advised clients to offer recipients a choice by asking: “Would it be more supportive to have a certain amount each year for three years or that total amount in this year alone?”
Identifying Giving Sources
Creating a giving plan is a collaborative effort to ensure that it’s feasible and compatible with a client’s financial plan. Clients can also review the potential tax consequences of the giving plan with their tax professional. Advisors can play a key role in identifying giving sources and implementing the giving plan. The strategies that advisors use to implement a client’s giving plan can depend on the size of the transfer, where the assets are coming from, the type of asset, and the type of receiving entity.
If a cash transfer is less than $1,000, or if the source is earned income, my clients typically process the transfer on their own directly to organizations. One of my clients designated a credit card as their “giving card” to help them keep track of one-time and recurring transfers, then pays the balance in full each month.
Qualified charitable distributions, or QCDs, also called charitable IRA rollovers, may be made from an IRA above a certain age. Only registered 501(c)(3) nonprofit organizations may receive QCDs.
If the receiving organization is a registered 501(c)(3) nonprofit and the client is seeking a tax deduction on the contribution, advisors may transfer the most highly appreciated long-term securities within the client’s taxable account. If the organization does not accept gifts of securities, the client can open a DAF as an intermediary account. The client can donate stock to the DAF—or even nonpublicly traded assets such as real estate, privately held business interests, or restricted stock—and then request that the DAF administrator send checks to the organization as a one-time or recurring transfer.
Personal property and real estate may be transferred directly to organizations by way of a change of title, which may require the support of an attorney. An example of a coordinated real estate transfer campaign is the Land Back movement, a national effort led by Indigenous communities to return lands to Indigenous peoples. A successful model is theDishgamu Humboldt Community Land Trust, created in partnership with the Wiyot tribe and Cooperation Humboldt, a local worker-directed nonprofit organization, to ensure that the Wiyot tribe maintains control over the land in the trust in perpetuity.
There can be roadblocks to transferring land ownership due to the complexity of this type of transfer. Donating real estate to a DAF can act as an intermediate step before the proceeds are donated as cash to a 501(c)(3) organization. In addition, a voluntary land tax, also called an honor tax, may be transferred directly to Native nations and organizations in their area. For example, a client of mine inherited a share of land as part of a family partnership and wanted to transfer the land to local Indigenous communities. Ultimately, the structure of the partnership made it difficult for her to transfer her share, so she connected with a local Native-led organization, sold her share of land, and transferred the proceeds to the organization.
Where to Learn More
Supporting your clients’ giving goals can be a rewarding experience that deepens your client relationships—and you don’t have to do it alone. There are professionals that specialize in the area of charitable planning, such as philanthropic advisors. Resource Generation and Solidaire are national donor networks that can help connect donors and advisors with professionals who specialize in this area.
The Trust-Based Philanthropy Project is a peer-to-peer funder initiative to address the inherent power imbalances between giving institutions, such as foundation staff and board members, and the nonprofits they support. Although the project is a network of institutional donors, its free tools and templates may be helpful to individual donors. One tool is its Six Practices Guide, which includes practical recommendations on how to implement trust-based grantmaking practices.
You can also further your education with a certification such as the Chartered Advisor in Philanthropy® through the American College. These professionals are trained to evaluate specialized accounts and tools for giving, analyze tax and other financial implications of giving, recommend charitable planning tools, and develop a giving plan in conjunction with a client’s financial and estate plan.