Many of our clients have been asking us questions about the role philanthropy plays in relation to a client’s legacy planning and tax planning. While there are certainly many reasons why people give their hard earned capital to charities at different points in their life, a recent study* gives us some useful information about what factors motivate charitable giving. (See Figure 3- Below) This study surveyed 20,000 high net worth households across the country in 2007. While this study obviously does not account for how people’s values and charitable intents may have been impacted by the “Great Recession” of 2008-2009, it does offer valuable insight into key trends in a number of areas. The average net worth of those surveyed was $12.6 million. Half of respondents had a net worth between $3 million and $20 million.

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WHAT WOULD HAPPEN IF THERE WERE NO INCOME TAX DEDUCTIONS?

We seem to be in an era of raising income tax rates on the affluent. But what would happen if affluent families had no deductions for their charitable donations? While there is no pending legislation aimed at eliminating these deductions, the answers to this question are important to understanding what motivates families to make donations. (See Figure 31- Below) According to the study, over 51% responded that it would not impact their charitable donations. 37% responded that their giving would “decrease somewhat” if there were no charitable deduction for their gifts.

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WHAT WOULD HAPPEN IF THE ESTATE TAX WERE REPEALED?

What would happen to charitable giving if the estate tax were repealed? It is often commented upon that funding charitable gifts, especially gifts to private family foundations, assuming a charitable intention, is one of the most straight forward ways to retain a family’s capital. Over 54% of respondents answered that their charitable intentions would stay the same. This is a slight decrease of about 7% from 2005. This figure once again puts a dagger in the myth that affluent families only give to philanthropies to save taxes. Rather, philanthropy has become an integral part of many affluent families’ estate plans because it can become a platform to teach responsibility, communication, compassion, decision-making and financial competency to the next generation. It creates a much different message for heirs and it raises the level of family conversation from “how much inheritance is in it for me” to “how can we make a difference to ourselves, our family, and our community?”

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Strategies in Charitable Planning

So, how prevalent is this theme of the importance of charitable giving? Well the most astounding figures are represented in Figure 48. Over 55% have some charitable provision in their Last Will and Testament. Over 17% currently have established a charitable “lead” or “remainder” trust, and almost 14% of those surveyed have established a private foundation.

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WHY AFFLUENT DONORS ESTABLISHED (OR WOULD CONSIDER ESTABLISHING) A CHARITABLE VEHICLE

The table to the right should also be of interest to all of our affluent clients. In summary, over 50% of these affluent families that currently have or would consider establishing a private foundation would do so to maximize their charitable deductions and over 30% either established a private foundation or would consider doing so to avoid estate/gift taxes. As discussed above, non-tax reasons are also not insignificant and over 23% of these families would have or would create a private foundation to create family unity/continuity.

(Below, Figure 4)

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Conclusion

It is interesting to note that the study found that 95.9% of high net worth households teach their children about philanthropy and the value of giving and more than 60% involve their children in philanthropy. And to whom do these families turn seek out to get information and planning advice about their future gifting? Almost 43% of wealthy families turn to their attorneys for advice.

Source

• 2008 Study of High Net Worth Philanthropy, Sponsored by Bank of America, Research & Written by the Center on Philanthropy at Indiana University