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Sunday, December 14, 2008

Give Til It Hurts

Private Wealth

By Hannah Shaw Grove , Russ Alan Prince - 10/3/2008

Despite the wide appeal of philanthropy, most of the wealthy don’t capture the benefits of planned charitable gifts.

... In an effort to understand how actively the wealthy are involved in the stages of the giving process, we surveyed 446 individuals with a net worth of $5 million or more and a history of giving at least $50,000 a year to non-profit organizations.

One of the first issues that surfaced in our study was how much authority and control affluent givers want in the selection of the charities they support and, then, how the contributions are used. Almost three-quarters of survey respondents characterized themselves as wanting a high degree of both—we refer to them as high-influence givers. By contrast, the remaining quarter were less interested in participating in the process—low-influence givers (Exhibit 1).

Typically, most charitable gifts—regardless of the total wealth of the donor—can be considered “checkbook philanthropy,” meaning monetary gifts made in response to fundraising requests or one-off situations such as benefit events and auctions. While this form of giving is no less important, it often occurs without much advance thinking or planning and may not allow either the donor or the charitable organization to benefit as much as possible.

To ensure maximum effect, many wealthy individuals have begun planned giving to structure their philanthropic activities. More than half of our survey participants had already established a planned gift, but there was a greater disparity when viewed by segment. About two-thirds, or 62%, of the high-influence individuals had established a planned gift, while just 39% of low-influence givers had done so (Exhibit 2). ...

The opportunity to proactively reduce taxes was of material importance for 87% of high-influence givers, but far less significant to low-influence givers. Just 35% of that group cited tax implications as one of the major drivers in their decision to establish a planned gift (Exhibit 3).

A large portion of both segments, however, cited a broader planning effort as playing a principal role in their decision to create a planned gift. Of high-influence givers, 97% said the planned giving process was part of a broader effort that focused on financial planning, estate planning or both, as did 90% of low-influence givers (Exhibit 4). ...

... The most popular vehicle for high-influence givers was the charitable remainder trust, with 60% having established one. The second most frequently used structures were private foundations and supporting organizations, used by 34% of high-influence respondents. By contrast, almost three-quarters of low-influence givers used a simple will bequest as the way to structure their charitable gifts.

Donor-advised funds were the second most frequently used vehicle, established by 29% of the low-influence segment (Exhibit 5). ...

About half of the 247 wealthy individuals that have established planned gifts have additional planned giving needs. A much larger percentage of high-influence givers, 58 percent, expect to enhance their existing gifts or established additional gifts as compared to just 19% of the low-influence givers (Exhibit 6).

While high-influence givers cited the same gifting vehicles—private foundations, charitable remainder trusts and charitable lead trusts ... The vehicle of greatest interest to the low-influence group was a private foundation, as cited by 52% of the segment. After that, interest in other giving structures dropped off considerably with just 13% identifying the donor advised fund as a product of interest (Exhibit 7).

... The planned giving process can help all types of donors get the maximum benefit from their gifts as it provides a forum to have a dialogue with selected charities, creates opportunities to involve family members, and can ensure tax codes are interpreted and leveraged to the greatest degree possible. Still, many affluent givers continue to make contributions without any advance planning and, as a result, may be sacrificing some substantial benefits.

Hannah Shaw Grove

Ms. Grove is a respected author, columnist and speaker and a leading authority on the mindset, behavior, concerns, preferences and finances of high-net-worth individuals. She is the executive editor of Private Wealth, the first and only magazine for professionals with ultra-affluent clients, and Cultivating the Affluent, a practice management newsletter for financial professionals.

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Russ Alan Prince

Russ is an editor of Private Wealth magazine and the president of Prince & Associates, Inc., the leading market research firm specializing in private wealth. He is a highly sought consultant to the ultra-high-net-worth and elite advisors and originated the use of high-net-worth psychology in the financial services sector. He is the author of more than 40 books on private wealth and is frequently cited as an expert in the national and international press.

View all articles by Russ Alan Prince