BROACHING THE TOPIC
I think a great approach is to use a slice of pie. Here's what I mean: When talking about estate planning, explain to clients that, at death, they can leave assets to three groups: people, charity and government. Ask them to draw their own ideal pie chart on what percentage they want to leave to each group. If charity gets zero, then you don't need to bring up the issue again.
But, if charity gets some share, then you can use a whole range of charitable planning techniques to get immediate tax advantages for your clients. The great thing about this technique is that it is very powerful even if your clients don't have charitable interests. Most likely the percentage the clients want to leave to government is lower than what they would currently lose in estate taxes. This opens the door for suggesting estate planning techniques to reduce this gap.
EASY WAYS TO HELP CHARITABLE CLIENTS
A lot of the techniques covered in our graduate program are quite complex. But there are also some very simple - and powerful - steps that any planner can use.
First, if your client regularly makes charitable gifts with cash, see if you can replace these cash gifts with gifts of appreciated securities. A gift of appreciated securities held for more than a year creates a tax deduction based on its current fair market value. But there are no capital gains taxes on the gift. Essentially, the client avoids paying capital gains tax on any gifts made with appreciated securities instead of cash.
Most people don't realize that this can happen even without changing the portfolio. If clients like a stock that they just gave away, they can simply purchase more of it with the cash that they were originally going to give to the charity. They don't even have to wait for 30 days, because wash-sale rules only apply to losses, and the clients are giving appreciated stocks. For clients who were donating anyway, you have increased their tax basis in their portfolio for free.
Another simple strategy is to set up a donor-advised fund for clients for end-of-year transfers. If clients have sufficient liquidity, they can shift all of the money they expect to give in the following year into their donor-advised fund.
Clients can take the deduction at the time of shifting the money into the donor-advised fund (usually in December), and then gradually pay out to charitable organizations over the course of the following years. This allows clients to take the deduction earlier, but still be able to respond to charitable requests throughout the following years.
This is also a nice stepping stone that can lead to client interest in establishing larger donor-advised funds or private foundations. Any assets in the donor-advised fund can still generate fees for assets under management until they are paid out to charities. There are no minimum payout requirements for donor-advised funds. This means clients can take their time in deciding which charities to benefit, even though the deduction may have been taken years earlier.
IMMEDIATE TAX BENEFITS
There are a variety of sometimes complex techniques that can create immediate tax benefits in exchange for an irrevocable pledge to leave something to a charity at death. The commitment to leave a gift at death has to be irrevocable in order to get the tax deduction. (Otherwise, you could take the deduction and change your mind later.)
Let's start with a simple case. If a client records a remainder interest deed that gives a charity the right to receive part or all of a home or farmland at death, the client can take an immediate tax deduction for the discounted value of that real estate. The tax deduction is based upon the current value of the property discounted by the client's life expectancy and the IRS interest rate. With current interest rates being so low these days, these tax deductions are huge.
For example, last month the IRS interest rate fell to a historic low of 1.4%, according to IRS code 7520. At this rate, if a 54-year-old client gave a remainder interest deed in $100,000 of farmland to a charity, the immediate tax deduction would be $70,000. The client gets this 70% deduction, even though he or she keeps the land for the rest of his or her life.