The Planning Skill Set Prized by the Wealthiest Clients

What You Need to Know

While the level of charitable giving has not changed dramatically in recent times, the giving landscape has.
Clients are looking for guidance on how to maximize their giving while considering their tax exposure.
From donor-advised funds to charitable remainder trusts, there are many vehicles and strategies to utilize.

Americans across the wealth spectrum have an increasing array of choices when it comes to how they give, and they are looking for expert counsel on how to maximize their philanthropic impact while taking into consideration their tax exposure and possible tax policy changes.

In fact, as emphasized by a panel of experts during ThinkAdvisor’s recent webinar about charitable giving trends, advisors have a critical and expanding role to play in informing clients about such topics as donor-advised funds, tax deductions and overall financial planning — and helping them build successful wealth management strategies tied to charitable giving.

The event’s speakers included Jeffay Chang, senior trust and estate specialist for Capital Group Private Client Services; Leslie Heffernen, managing director of fiduciary and legal services at Pitcairn; Stephen Kump, CEO and chairman at Charityvest; and Ken Nopar, vice president and senior philanthropic advisor at the American Endowment Foundation.

According to the panel, 2023 is a highly dynamic time for charitable giving here in the United States, after 2022 saw charitable contributions nearing $500 billion. This represents a decline in giving after strong growth in 2020 and 2021, but the figure is nonetheless impressive, given the sharp equity and bond market declines experienced in 2022.

Looking ahead, more than half of Americans plan to make philanthropic gifts in 2023 that match their charitable contributions in 2022, while 10% expect to give more than they did last year.

This means that advisors who can help their clients take advantage of new developments in philanthropy, financial planning and taxation to achieve both their long-term charitable giving and wealth management goals will be highly prized by wealthy clients.

Sizing the Philanthropic Market

As Nopar pointed out, data from Giving USA’s latest annual report on philanthropy shows giving dropped in 2022, marking the first annual decline since the Great Recession.

“Specifically, giving fell 3.4% from 2021, but it was actually down 10.5% when adjusted for inflation,” Nopar said. “Frankly, this makes sense and was to be expected, because there was a 20% to 25% decline in the stock market during the year. In that sense, it is still very impressive that $500 billion was given.”

As Nopar observed, the level of giving has not changed dramatically in recent times, but the giving landscape definitely has.

“You can see this in some other statistics,” he posited. “In 2000, two-thirds of all Americans donated in some capacity, but that number has fallen to below 50% in the past few years. Where and why people give has also changed.”

According to Nopar, giving to religious organizations accounted for 27% of 2022’s total, while human services groups received 14% of donations and education organizations grabbed 13%. Notably, for higher-net-worth individuals, giving to education was the top objective, while religious giving was third.

“Back in 1990, half of all giving was going to religious organizations. That’s been cut in half in the last 30 years,” Nopar said.

As Kump observed, the fact that giving is now more concentrated among the wealthiest segment of the U.S. population is a reflection of the greater concentration of wealth at the top of the income scale.

“This is a trend to be aware of if you are an advisor who focuses on mass affluent and high-net-worth clients,” Kump said. “Charitable giving is increasingly a planning topic that you need to bring to the table. It is a skill set that is highly prized by the wealthy, and if you aren’t talking to your clients about this, another advisor will.”

Guiding Questions for Clients and Advisors

As Heffernen explained, for advisors to give the best possible guidance to their clients about giving, they need to understand what the client wants to do with their money — both today and in the future.

“There are four key guiding questions,” Heffernen said. “Why are you giving? When are you giving? How are you giving? And how much are you giving? These questions can really present a good starting point for these conversations with your clients or prospects.”

Some other good questions, Heffernen said, include whether a client favors “one and done” giving, or if they want to establish a planning vehicle that will last over time. Will the family get involved, or is this a solo effort?