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Three ways to take the wheel on charitable giving

With external dynamics like tax reform and the rise of socially responsible investing shifting the philanthropy landscape, there are more ways than ever for high-net-worth (HNW) individuals to make an impact in their community.

Wanting to give back is one thing. Carving out time for philanthropy is another — especially as managing day-to-day operations of a business is a top focus. Yet as we face the largest intergenerational wealth transfer in recent history —where a whopping $68 trillion will be passed on to children over the next 25 years — business owners and executives need to develop robust and up-to-date philanthropy plans and communicate those plans with the next generation.

To better understand philanthropic investing strategies and execution, a Key Private Bank Quarterly Advisor Poll released in September 2019 surveyed advisors on their charitable giving experiences, the key triggers for giving among HNW clients, the common challenges they see, and the steps families are taking to measure the impact of their donations.

Here are three ways business owners and executives can refurbish their philanthropy plans to get the most mileage out of their donations and preserve family wealth across generations:

1. Chart a philanthropy roadmap

HNW families most often engage in philanthropy and giving back for moral reasons, the poll found—with 34% of advisors saying clients feel a duty to make the world a better place and 32% saying they feel an ethical obligation to repay the people and institutions that contributed to their success.

Yet, when it comes to philanthropy planning, the biggest mistake advisors see clients making is failing to factor charitable giving into their overall estate and legacy plan. This points to an opportunity for HNW individuals to create a charitable giving roadmap rooted in the legacy their family wants to leave and take steps to ensure their values and wishes are captured for future generations.

With nearly one-third (29%) of advisors saying setting a family mission for giving is the most difficult part of philanthropy, cross-generational conversations are a great place to start. These conversations can help HNW individuals get on the same page with their family members about what legacy they want to leave, and how that legacy can be expressed through charitable giving.  Ultimately, these conversations should be about more than money. They should be about the family’s legacy and leaving a mark on the world—where the focus shifts from financials to building a strong bond between parents and children, full of trust and communication.

2. Maximize mileage from giving approaches

Clients are split in their giving strategies and behaviors, the poll found — 49% of advisors say they see more HNW investors directing one-time gifts to organizations, while 47% say they see more clients establishing donor-advised funds and just 4% say more clients are engaging in crowdfunding and peer-to-peer giving via social networking platforms.

Before choosing a donating approach, HNW individuals should start with an understanding of the fundamental differences in each giving strategy, and how they can impact the family’s finances, both immediately and in the future. For example, certain types of donations can be claimed as tax-deductible expenses, but new deduction limitations introduced in the Tax Cuts and Jobs Act of 2017 may impact approaches to doing so.

Charitable Remainder Trusts (CRT) and Donor-Advised Funds (DAF) are two powerful vehicles that can help you to be strategic, both tax-wise and “philanthropy-wise.” CRTs can help HNW individuals convert low-basis assets, such as stock and real estate, into lifetime income, while generating substantial tax savings and providing support for important causes. You can also name beneficiaries for your DAF so future generations can continue giving in the years ahead.

3. Pop the hood to inspect charities

Two-thirds (65%) of advisors say “hardly any” or “none” of their clients use online tools — like GuideStar, CharityWatch and Charity Navigator— to perform due diligence and vet potential philanthropic donations prior to giving. Yet once a family philanthropic mission and strategy has been established, it is important to thoroughly research potential causes and organizations to ensure that values and goals are aligned. Some advisors even recommend that clients become personally involved with the organization that the client plans to donate to.

One of the most meaningful aspects of accumulating wealth is the ability to give back in significant ways. But philanthropy is about more than simply giving money. It’s about pairing personal values with what matters most to help communities, and the world at large, speed toward a brighter future.

Steve Storey is Idaho Market President and Key Private Bank Leader for KeyBank. He can be reached at 208-364-8511 or steven_storey@keybank.com.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice. KeyBank is Member FDIC. KeyCorp. © 2019.

About Steve Storey