Three questions to ask wealthy clients about charitable giving

Charitable giving should be part of financial and estate plans, but sometimes client intentions aren’t explored beyond a surface level.
“If we’re not factoring in the philanthropic discussion and planning for tax efficiency, then we are not doing our job,” says Alexandra Spinner, chartered professional accountant, trusts and estate practitioner and partner in the tax and estate planning group at Crowe Soberman LLP in Toronto.
In some cases, she says, advisors may prioritize keeping assets invested instead.
Below are three open-ended questions advisors can ask high-net-worth clients about charitable giving.
Ms. Spinner says philanthropic discussions often start with questions about what drives clients to give back. Many, for instance, want to leave a legacy reflecting their values and philosophies by giving away a specific percentage of their estate.
Lydia Potocnik, national head, estate planning and philanthropic advisory services at BMO Private Wealth in Toronto, says many of her single clients want to donate the bulk of their estate or divide their wealth between a charity and other family members. Her conversations come up in the context of their wealth plan when clients are asked about their goals and values for their wealth.
While not often the main motivation, Ms. Potocnik says some clients who anticipate hefty capital gains taxes upon death are more likely to make a gift to charity as another way to minimize taxes payable by their estate. This can also have the effect of increasing the value of the estate for other heirs who will benefit under the will.
Once the advisor knows more about the client’s goals and intentions, the next step is taking stock of all their assets, including real estate, collectibles, cash, registered and non-registered investments, and life insurance, Ms. Spinner says. She tallies everything up and estimates the taxes owed on a person’s death. Her thinking is, “If you’re going to give away the money, let’s at least give it away in the most tax-efficient way possible.”
Abe Toews’s clients make their charitable intentions known early on, but he needs to educate them on Canada’s tax rules. While there’s no estate tax like in the U.S., Mr. Toews, chartered financial consultant at Beyond Wealth Management in Regina, points out the taxes due on death. These increase considerably after the second spouse’s death when assets have a deemed disposition instead of a straight transfer to the living spouse.
Like Ms. Spinner, he starts with more pointed questions such as how much to leave for family and how much is left over. He helps clients determine how much money might be needed in the future for eldercare, for example, as they decide if clients are able to donate now.
Mr. Toews notes that many clients want to see the benefits of their donation, which sometimes is made anonymously, such as funds to build or renovate a park.
“They can go and watch the kids play at the park and nobody knows that they helped build the park,” he explains. “While they’re alive, they get some good feelings about what they’ve done for their community.”
Ms. Spinner says some clients envision giving away a specific thing – such as real estate, art or a classic car – to a charity rather than investments or cash.
But this usually falls short because clients fail to communicate with the charity ahead of time.
“It may be very cumbersome for the charity to accept this gift,” she says.
For example, in the case of art, the museum may only be able to accept pieces that are culturally significant or by a specific artist.
The client may find the charity might be better equipped to receive a gift of cash or a publicly traded security instead.
“I encourage them to speak with the charity … to let them know that they can expect this gift at the time of the person’s passing,” Ms. Spinner says. “It can also help the charity plan with respect to their own assets and cash flow as to what’s coming.”
She notes that many charities she’s worked with on a voluntary basis would love to recognize individuals for their generous donations while they’re still alive.