12 signs during tax season that clients need help with charitable planning
Though clients may not always ask their accountants or other advisors for help with their charitable planning, they would welcome input if they understood that it would help them more effectively and efficiently achieve their philanthropic goals.
This guidance can also help clients feel a greater sense of satisfaction and accomplishment with their charitable giving. They may be more receptive to advice these days because the recent election has caused some to rethink their charitable priorities. This discussion can also help advisors by deepening their relationships with these clients and may then help to facilitate introductions to their clients’ family members, friends and colleagues.
Tax season is often the ideal time to be able to identify the signs that clients need help since there is frequent interaction with clients as they provide information to CPAs for tax preparation. Some of the indications include:
1. Clients have appreciated assets they could have donated, but instead wrote checks or donated by credit card.
2. Clients need to pay significant capital gains taxes that may have been avoided or minimized had they donated those assets to charity.
3. Clients can’t find tax-receipt letters from the charities or don’t recall if they contributed by check, credit card, cash or other means. Clients are frustrated by the process of keeping track of these, or it takes them a long time to provide these to their CPAs. Even then the list is incomplete.
4. Clients wait until the end of the year to make all of their donations, even though this could have been done much earlier. These late donations often add extra stress to the donors who feel rushed to make decisions, their wealth advisors who may have to rush to donate stock at the last minute and charities that are hoping to receive the donations before year-end.
5. Clients donate significantly different amounts every year.
6. Clients donate to different charities every year.
7. Clients make many donations to the same charities throughout the year.
8. Clients are frustrated with the process, the paperwork, the responsibility, the frequent solicitations from charities, and whether their donations are appreciated or if they are having an impact.
9. Clients try to deduct contributions for which they are not entitled such as entire amounts for tables, tickets or items at galas, golf outings or auctions.
10. Clients have private foundations but do not follow the rules or are overwhelmed by the reporting and operating requirements. Donor-advised funds may be a much simpler solution that would still enable client to achieve their charitable goals and mission.
11. Clients are getting ready to sell a business or other asset and could greatly benefit by making a donation of the entire asset or a portion of it before the sale, rather than paying the taxes and then contributing the after-tax remainder.
12. Clients are generous in their donations, but accountants can see when preparing returns that their children, who sometimes work in the same family business, are not. Parents wonder how to instill their children with similar philanthropic values.
Once a tax or other advisor has determined their client needs help, what should be the next step? Having the charitable conversation should be very natural because clients depend upon their advisors to help them achieve their financial, estate planning, tax minimization and philanthropic goals.
Many clients may want to continue to donate directly to their favorite charities. Others may consider establishing a private foundation, though this is not nearly as popular as it was 20 years ago.
The biggest trend over the last decade has been the creation of donor-advised fund accounts since they are simple to establish and use. They can be created without cost and with minimal ongoing expense, time and effort. They are effective in helping clients achieve their charitable mission and can accept donations of assets that provide more significant tax benefits to donors than private foundations. Many DAF accounts were created during 2016 and especially after the November election. There are now close to 300,000 accounts, twice the number that existed eight years ago and approximately 3.5 times more than the number of private foundations.
Though CPAs may not have the time during tax season to fully discuss options with clients, beginning the conversation now is beneficial for everyone. The worst time to have a detailed conversation is in November or December since the best charitable planning decisions are made far in advance rather than under the stress of time constraints.
Should advisors and clients agree that opening a donor-advised fund account is the best option, advisors should help their clients select the best DAF sponsor since each has different rules and policies. On their own, clients may select a DAF with high fees, limited or no succession or transfer options, poor or few investment choices, limited options of grantees to support, and many other limitations. Increasingly, CPAs and attorneys are consulting with their clients’ financial advisors to determine which DAF sponsor will allow the client to achieve their goals and to permit the financial advisor to manage their clients’ investments in their DAF accounts.
Whether clients donate directly to charities or establish a charitable vehicle, tax season is often the ideal time to broach the subject with clients. Clients have just provided the information to their CPAs who can see their clients could use guidance. Because nearly all clients who hire accountants are philanthropic, they would welcome input to help them more efficiently achieve their charitable goals. Start the discussion now but set up a time in a few months to have a deeper conversation to review the options. Your clients will thank you and the charities they support will thank them.