How Your Wealth Management Clients Should Leave Charitable Bequests

Many of your wealth management clients would like to enjoy the benefits of leaving a charitable bequest, but since no one has had a meaningful discussion about it, they never follow through with it. There are many benefits that your wealth management clients will recognize from making a charitable bequest. These include:

  • You'll help your clients determine the legacy that they leave behind.
  • Since charitable bequests avoid estate tax, and in many cases, income tax, your clients will leave more of an estate to have an impact on the people and the organizations that they leave behind.
  • Your clients' charitable bequests from their estate will often be larger than a charitable donation that they make during their lifetime. Thus, the charitable bequest will have more impact.
  • Your clients will have one last opportunity to demonstrate their values to their children and grandchildren.

You can start your conversation about this with your wealth management clients by asking a simple question like, "Would you prefer to leave your entire estate to your family, or would you prefer to leave some portion to charities with the remainder going to your family?

Or, for the client who detests paying taxes, you could ask, "If leaving a charitable bequest helps your estate and your family avoid taxes, would you like to have a conversation about that?

If your investment clients want to discuss more about the right way to make a charitable bequest, you may want to set up a time where you and your wealth management client can have a meaningful conversation with me (the estate planning attorney) to determine the structure of their estate and their charitable bequest.

I've seen lots of mistakes made by attorneys who do not know how to advise their clients how to make charitable bequests. Here are a couple of issues that come up:

Where Assets Should the Charitable Bequest Come From?

Most of your wealth management clients have different types or classes of assets. Some have IRAs, 401(k) accounts, annuities, an investment portfolio, real estate, and cash. Some professionals don't know to put careful thought into where the charitable bequests come from. So, if your client writes in his Will or Trust: "I leave $100,000 to ABC Charity," then this may have cost the family $40,000 or more.

You see, if the charitable bequest had come from the client's IRA, and if the client had allowed the family to inherit the non-IRA assets, then there would be big-time tax savings. When the client leaves all or a portion of his IRA to charity, then the charity does not have to pay income tax on the distribution that goes to the charity. This can be a great tax-savings tool. And with the rest of the estate going to the family, and since an inheritance is income-tax-free, considerable tax savings results from providing that the charitable bequest comes from the IRA.

Another issue that does not get the proper attention is the proper restricting of the charitable gift. Some people want to leave a charitable bequest to their favorite college, but they don't know that they could, for example, restrict that gift for, for example "an engineering scholarship." Your wealth clients may prefer to restrict their charitable bequest for certain purposes, rather than have it go to the university's general fund.

If you have wealth management clients who are serious about recognizing the benefits of leaving a legacy through charitable bequest, then let's have a talk to determine the way that will truly be a win-win-win. A win for the charity that benefits from the bequest; a win for the client who recognizes the benefits of the charitable bequest; and a win for you by enhancing your relationship with your client.