Donating to charity is admirable and a valued part of any civilized society, so it’s no wonder that it represents a significant part of many people’s budget. For some people, it’s a monthly deduction from their paycheck or a frequent check written to a charitable organization. For others, it’s an annual gift to their children’s school, a social cause or a religious organization.
Whether it’s contributing to an organization you support ideologically or helping your family members in times of need, charitable giving is intensely important – and personal – for many.
Many financial planners and their clients disagree when it comes to charitable giving. Some planners see their clients putting the needs of their charity ahead of their own budgetary needs. For example, a soon-to-be retiree who gives money to a religious organization instead of buying a long-term care plan. (For more, see: Charitable Giving Without Spending a Dime)
Since charitable giving represents one of the most intimate aspects of personal finance, it’s crucial that financial planners realize how to balance the altruistic desires of their clients while also ensuring their futures are secure.
Here we discuss how you can address your clients’ charitable giving, while still encouraging them to do it in a responsible and sustainable way.
It’s Their Money
Giving is great, but a financial advisor needs to be a voice of reason and help clients distinguish between how much support they should give to charities versus saving enough to support their own financial needs.
“I'm very conscious not to discount the giving habits of my clients,” said CFP Brandon Marcott of Edify Financial Planning. “It is their money, not mine, and while they hire me to give them financial advice, they don't hire me to tell them they can't give money away. I have a particular client that gives their mom a decent amount of money. While it’s true that if they didn't do that, they could be in a much better financial situation, that's not the point.” (For more, see: Estate Planning: Charitable Trusts)
One way to balance the needs of the financial planner, along with the wants of the client, is to encourage the client to name a charity in their will. They can also designate an organization as beneficiary of a life insurance policy, IRA and more. That way, they can still be generous without harming their day-to-day finances. This is a good compromise between long-term thinking and short-term planning. Planners can also help their clients understand the tax benefits of charitable giving and how that plays into their financial plan and overall savings strategy. (For more, see: Give to Charity; Slash Your Tax Payment)
For some people, especially those who have a huge estate, financial planners and other professionals can help ensure that their wishes are communicated.
“When clients are interested in charitable giving, often they don’t exactly know how to start,” said Ted Halpern, president and founder of Halpern Financial, Inc. “We help them to make a streamlined defined giving plan that works with their broader financial strategy, including monthly cash flow and tax efficiency.”
The Bottom Line
Charitable contributions are something that should be encouraged, but people should also view their donations in a broader context. That’s where financial planners step in. They can offer guidance about a person’s entire financial landscape as well as the particular aspect of charitable giving. It’s important to ask each client what they hope to do with their money. Do they want to live a comfortable lifestyle? Are they hoping to provide a nest egg for their children and grandchildren? Or are they hoping to make a larger difference in the world? By asking your clients these questions, you’ll help them see that you’re a planner who understands what they want and what they need to do. (For more, see: Gifting You Retirement Assets to Charity)