Two Tips for Helping your Clients Determine the Right “Giving Budget”
How do you help clients figure out the right giving budget? Sometimes, a client might ask you to help them figure out the right charitable budget, other times you might raise the topic. Here are some ways to introduce the giving budget, vehicle, or tax considerations topic:
How much would you like to give away?
Let’s talk about the difference between giving from your income versus appreciated assets.
Let’s talk about bunching.
Let’s talk about the tax implications of your earnings this year.
Let’s discuss the differences between DAFs, family foundations, CRTs, CLTs…
There’s no one right way or perfect formula–after all, you need to consider their full financial picture, their life’s goals, their age and career stage, all of the assets at their disposal, and so much more. However, here are two ideas that may help some clients figure out the right charitable giving budget for them.
Often, individuals develop a budget based on giving away a percentage of their income. However, what if you helped your clients think about developing a budget based on giving away a percentage of their liquid net worth?
If clients can afford to pay, say 1% of their liquid net worth per year to hire a financial advisor team, they can likely afford to donate 1% per year of their liquid net worth, as well, and still be on track to achieve their other personal and family goals. (Obviously, you have to “run the numbers” for them to confirm!)
For example, someone with $2M liquid net worth may be able to give away $20K/year. Obviously, there are more factors to consider, but this can be a useful, easy way to help clients develop a charitable giving budget that is both realistic and inspiring.
You may realize this, but chances are, your clients have no idea: donating appreciated assets instead of income can usually unlock significantly higher giving capacity each year. Here’s how to explain it:
When you donate appreciated assets like stock, you have the chance to reduce 2 taxes: income tax and capital gains tax. When you donate cash, you can only reduce 1 possible tax: income tax.
If you were planning to donate $10K in cash, but you gave $15K in appreciated stock instead, your tax savings might be about equal and yet you’re able to give $5K more to charity (rather than the government) for the same “cost” to you! That’s a huge win! This is a great “trick” to share with clients.
If you haven’t had the “giving budget” conversation with your clients yet and you know they’ve donated to charities over the years, in your next meeting bring up the topic. Ask them how they think about their charitable giving, how they have thought about their “number,” and if they would like your help thinking through what’s possible for them given their financial situation. These conversations are incredible ways to connect more deeply and build trust with your clients–showing you have their best interests in mind. And chances are, you’ll learn a bit more about the kind of impact they hope to have on the world.
*This post is not intended as legal or tax advice. This information is intended solely for information and education of wealth advisors and the legal and tax advisors with whom they work. It must not be used as a basis for legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. GiveTeam does not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.
