Adding Charitable Planning to Your Law Practice

Apr 13, 2018 5:03:09 PM


Nonprofits have always been regarded as important social safety nets, providing for individual and community needs that are not met by the US government. It’s no wonder charitable giving has been steadily increasing since the Great Recession. According to Giving USA, the combined donations of individuals, foundations, and corporations in 2016 exceeded $390 billion.

It’s highly likely your clients have already donated to charities and may wish to incorporate charitable giving into their estate planning legacy. Luckily, with some legal know-how and the proper resources, any estate planner can easily add charitable planning into their practice.

Why estate planners should add charitable planning to their practice

Clients value it. With over 90% of high-net-worth individuals giving to charity, charitable planning is now a necessity to meet all your clients’ estate planning goals. It’s an excellent opportunity to deepen client relationships by helping them minimize taxes on their estate, while also allowing them to support the causes and organizations most important to them.

It’s smart business practice. According to The National Law Review, a company will spend 5x more to acquire new clients than it would to keep old ones. Not only is client retention cheaper than acquisition, but businesses that can increase retention by 5% will increase their profitability by 75%. By expanding your estate planning services to include charitable planning, you can easily tap into the most accessible market—your existing client base.


How to add charitable planning to your practice

Adding charitable planning to your practice is easier than you think. For your new clients, it can be as simple as adding charitable planning questions to your initial client interview. For existing clients, you can notify clients of your new service either by phone, letter or through a promotional email campaign.

Once you get clients through the door, determining their charitable giving strategy begins with discovering what type of charitable giver they are.


What kind of charitable giver is your client

Today’s charitable givers are a diverse group, varying in scope and engagement levels. For simplicity’s sake, we will divide givers into four categories:

How active your client wants to be in their charitable giving, along with the size of their estate, should determine their charitable giving strategy. Clients who fall more on the left-side of this graph will require considerably less planning and will have lower start-up and administration costs. Clients who fall more on the right-side will require larger estates for philanthropic funding, as well as the ability and desire for greater personal involvement.


Establishing a giving strategy

A client’s charitable giving strategy should balance what is in the client’s best interest, while also carrying out the client’s philanthropic wishes. Lifetime giving allows active clients to be more involved in their charitable giving while offering the opportunity for income tax deductions. Giving through wills and trusts allows clients to give after their death and potentially reduce their estate tax liability.

In light of the Tax Cuts and Jobs Act’s increase of the standard deduction and doubling of the estate tax exemption, the tax savings previously afforded by charitable giving is greatly reduced for many people. In today’s environment, your charitable giving strategies may consist of a combination of lifetime and after-death giving in order to maximize the tax benefits available to your clients.

The most popular types of charitable planning are:

Donor-advised funds: Establishing a donor-advised fund (DAF) allows clients to be as active as they want to be in their philanthropy while giving them an immediate tax benefit. DAFs are generally easily established with public charities, and clients can recommend grants from the fund over time. More active clients can track ROI of grants and research and engage with grantees. The strategic philanthropist can leverage involvement with other funds or a private foundation.

Make note: this option may not be right for clients who want total control over how the donated funds are used. When using a  DAF, clients are essentially “advisors,” who can make suggestions on how the charity might use their donations. The final decision is ultimately up to the charity.

Private foundations: This charitable giving strategy is best-suited for philanthropic legacies over $1 million. It’s a great option for clients who want to employ their family in their gifting-legacy. This option allows for the greatest control over the investment and distribution of donated funds. Private foundations also give clients the option to compensate board members for their work and make international grants.

Private foundations and DAFs can be used in conjunction with each other to achieve a desired result. Because private foundations have an annual minimum distribution requirement, a DAF can be useful as a backup receptacle for these distributions. A DAF can also provide anonymity to a donation, a feature which is lacking from private foundation distributions. Additionally, there may be tax benefits to contributing certain assets to one type of vehicle over the other, allowing them to further complement each other.


Charitable Remainder Trusts (CRT) & Charitable Lead Trusts (CLT)

CRTs and CLTs operate within the same premise. Both are irrevocable, which means once an asset is placed in the trust, it cannot be removed by the grantor. Accordingly, these trusts should only be funded with assets that your client can afford to give. Both provide for a stream of income to be distributed to a designated party during the term of the trust and for the remaining trust assets to be distributed out when the trust terminates. The difference lies in each trust’s distribution priorities.

Under a CLT, the charity receives the income interest, while the beneficiaries receive their disbursement only once the trust terminates. A CRT is the opposite, with the beneficiaries receiving the income interest upfront and the charity collecting the trust’s remaining assets at the end of the trust’s term. There are also significant differences in the income tax deductions available under these two types of trusts. A careful evaluation of your client’s philanthropic wishes, financial affairs, and tax situation will help you determine which strategy is appropriate to suggest.


Planning under H.R.1

The Tax Cuts and Jobs Act, or H.R.1, has had a profound effect on estate and charitable planning. What’s more, many of these changes are temporary and will sunset in just a few years. Thus, it’s important to plan accordingly.

Learn more about how to plan under H.R.1 by reading “Tax Reform is Here: What You Need to Know to Advise Your Clients.”


Wealth Docx® Charitable Planning Module

Wealth Docx is the premier legal document drafting tool designed by attorneys, for attorneys. To meet all of your charitable planning needs, our charitable planning module offers a variety of document templates, such as:

  • Gift annuity agreement
  • Gift agreement
  • Life estate reserved deed
  • Maintenance and ownership agreement
  • Charitable Remainder Trust
  • Charitable Lead Annuity Trust
  • Charitable Lead Unitrust
  • Charitable Lead Trust
  • Charitable Remainder Annuity Trust
  • Charitable Remainder Unitrust
  • Private foundations

Draft faster. Draft smarter.

Each document can be quickly set up and is easily customizable. Attorney profiles can be saved and efficiently inserted into each new document. Duplicate entry of client information can be avoided by syncing your Wealth Docx and client management systems. Team members can instantly collaborate on any device through our Cloud platform.

Multiple tools. One place.

Whether you are new to estate planning or an industry veteran, Wealth Docx offers a variety of tools for every estate planning attorney.

  • Stay in-the-know by accessing our 24-hour legal library, exclusive webinars, and CLE courses.
  • Gain entry into one of the largest professional networks for estate and business planning attorneys.
  • Draft with peace of mind, knowing all of your documents are legally up-to-date and accurate.

Learn more about Wealth Docx by visiting our website or scheduling a software demo.


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