By Joan M. Wiggins, MBA, CFA | Vice President & Investment Counsellor | RBC Phillips, Hager & North Investment Counsel Inc.
Advising clients on managing their financial affairs is all about context: What are the client’s goals and priorities? How much will it cost to achieve those goals? Will there be excess annual income or capital after their goals are met? At the end of the day, identifying who and what is important to clients will set the stage for proper financial and estate planning and the investment management that funds those plans.
I think of this process as the client expanding their frame of reference in concentric circles, looking out in all directions.
In the beginning, they focus on the center, considering their personal needs, including lifestyle spending, saving for retirement and major expenditures. Then they expand their frame of reference to the needs of family, including the education and shelter of children and grandchildren. Beyond that, many clients have additional resources in terms of time and money and give back to their communities. Some feel that helping others brings happiness, so supporting their community (however defined) comes naturally.
For professional advisors, once clients acknowledge giving back to their community as a priority, the door is open for a conversation about how charitable giving fits into their broader financial and estate plans. They may disclose one or more charities that they support and perhaps their aspirations for future giving. The advisor’s role is to help them explore their capacity for achieving these objectives and ensure that their giving is optimized from a tax perspective.
In my experience, sensitivity on the part of the advisor is essential. This is the client’s journey and it can take time. Even clients with significant capacity may hesitate to formalize their charitable giving because the process can be financially and emotionally complicated and nuanced. Advisors should tread carefully. Any discussion should acknowledge the client’s:
- Lifestyle spending and contingencies for unanticipated costs
- Personal philosophy and family history with charitable giving
- Financial capacity in terms of annual income and total net worth
Some clients have no family, so charitable giving is an obvious choice for them; some appreciate the opportunity for tax savings during their lifetime by giving appreciated securities; some decide to build a legacy using a donor-advised fund or private foundation; some accelerate their estate plan by settling a charitable remainder trust. In the end, my experience has been that clients are often pleased and relieved at having a plan and feel a sense of satisfaction once the plan is put into action.
Typically, the capacity for charitable giving and the feeling that you have enough don’t always coincide, so initial charitable gifts can start small. Clients build their confidence over time and small cash gifts turn into larger cash gifts, which become gifts of appreciated securities, which become endowed gifts or perhaps bequests from their estate. A well-informed professional advisor and a strong client relationship are necessary to help clients navigate the available options through the lens of their financial and emotional comfort level. Some of the key decisions that each client faces involve:
- Which charities to support?
- How large should the gift be?
- When to give? During their lifetime or after death?
- How to give? Cash, securities or beneficiary designation (eg. life insurance, RIF or trust)
Over the next few installments in this series, we’ll review a few case studies of clients who identified and prioritized charitable giving in their financial and estate plans. Each case study is different and each client has their own journey, but a sensitive advisor can definitely assist them along the way.