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Make the most of HNW clients’ charitable nature

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Philanthropy has long been important to wealthy clients and is a growing trend among high-net-worth investors. Indeed, 83% of wealthy donors planned to give as much or more in the three-year period ended in 2018 than they did in 2015, according to the most-recent U.S. Trust Study of HNW Philanthropy.

Donation amounts are on the rise as giving in the U.S. reached almost $400 billion last year, a 2.7% increase from the prior year, according to the Giving USA Foundation.

HNW clients are motivated by more than the financial benefits they might receive.
“Even though there are tax benefits associated with charitable gifting, it’s my observation that most people who are charitably inclined are not driven to those activities because of tax benefits,” says Kathy Muldoon, senior vice president of Carter Financial Management and an advisor with Raymond James Financial Services. “They are really motivated by core values in their household.”

Research backs that up. Just 18% of wealthy donors said they gave largely because of tax benefits in 2015, the study says, down from 34% from 2013. Other motivations that spur HNW clients are belief in the mission of the organization they are donating to, believing that the gift can make a difference, religion and personal satisfaction.

Despite an altruistic mind-set, almost half of wealthy donors, 48%, don’t have a strategy in place to guide their contributions, according to the 2016 study.

“Charitable giving is a financial goal that should be coordinated with all other financial goals, i.e. maintaining chosen lifestyle, protecting future financial security, leaving a family legacy, etc.,” says advisor Joshua Stillman, Capitol Financial Consultants.

“One key question to explore through the planning process is how to prioritize charitable giving with other financial goals,” Stillman adds.

One tool in particular that can serve as a good entry point into the philanthropic sphere is the donor-advised fund. There are good tax planning opportunities and the funds are easy to set up, Stillman says. Even the big investment firms see the value here.

Indeed, BNY Mellon’s Pershing added a third donor-advised fund to its platform in an effort to better serve its burgeoning philanthropic efforts.

“The philanthropic portion of our high-net-worth solutions really fits into the ability for clients to leave a legacy,” says Katie Swain, director of financial solutions at Pershing.

Despite an environment of uncertainty due to a volatile political climate and issues surrounding tax reform, philanthropy among HNW clients will continue in the coming years.

Just 3% of wealthy donors plan to give less through next year, compared to the 6% that planned to give less when asked in 2014.

“We’ve seen tremendous growth, especially in donor-advised-funds since 2010,” Swain says. “While the rate by which people are gifting may slow with the uncertainty we will continue to see the trend increase.”

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