As we approach the peak of charitable giving season, you have the opportunity as an advisor ,to initiate and guide your client’s philanthropic decision making.  Clients may take a reactive approach to philanthropy, making donations in response to events, including annual appeals and natural disasters like Hurricane Sandy.  This reactive approach, while understandable and common, may not have the level of long-term impact that could result from a more deliberate and strategic process. 


Five Key Questions

Below are five key questions to review with your clients to assist the migration to a more proactive approach to philanthropy.  As with estate planning, the more time spent at the outset in integrating the client’s goals and available vehicles, the greater the benefits derived.


1. Why do you seek to engage in philanthropy? Philanthropy may arise from a wide range of motivations, including religious faith, a formative event or experience and adding value to society.  These motivations often reflect a donor’s core personal values, which continue to inform many decisions throughout life.  Discerning why clients give to various causes helps define their philanthropic values, which can guide their planning as they consider charitable initiatives, candidates and vehicles.

2. When do you wish to commit your resources? Resources include not just financial assets, but also one’s time and personal reputation.  A client’s commitment of service as a board member, advocate and/or spokesperson for a particular cause may depend on the current priorities of other commitments, which may increase or decrease over time.  Sometimes, the urgency of the cause may inspire a client to devote more time than before.  Often, high-net-worth individuals serve on several boards, with their time and energy dispersed among many initiatives.  To ensure a meaningful allocation of time and efforts, an annual review of priorities may help clients focus their energy and achieve traction in their philanthropy.

With respect to financial resources, tax considerations often arise as a primary factor in deciding when and how much to commit to charity.  The appeal of the charitable deduction may increase this year, in light of several items arising for 2013:

·       Statutory: Under current law, the return of the Pease limitation next year would reduce itemized deductions (including charitable deductions) by the lesser of:

o   3 percent of the amount of the taxpayer's adjusted gross income (AGI) in excess of a threshold inflation-adjusted amount; or

o   80 percent of the itemized deductions otherwise allowable for the tax year.1

·       Proposed: The Obama administration has proposed to limit the value of all itemized deductions and certain other tax expenditures for individuals with incomes over $200,000 and families with incomes over $250,000, by limiting the tax value of otherwise allowable deductions and exclusions to 28 percent.2

Since neither limitation applies in 2012, higher income taxpayers may choose to benefit from the certainty of the current charitable deduction this year. If income tax rates increase next year as prescribed under current law, other taxpayers may find that a charitable deduction next year may still benefit them more.  For this reason, taxpayers should consult with their tax advisors in modeling out the optimal timing of deductions under all possible scenarios. In addition, taxpayers may be motivated to accelerate income recognition (for example, through the timing of compensation, Roth individual retirement account conversions or sales) into 2012 before higher tax rates3 and Medicare surtax4take effect in 2013.  Accordingly, they may also use charitable deductions as one way of mitigating their accelerated tax liability, albeit at a lower rate than that anticipated for 2013.

As a result, some clients may conclude, after confirming with their tax advisor, to make a significant charitable contribution this year, but haven’t yet decided which charities and amounts to donate.  In this case, they may contribute to a donor advised fund now and retain the flexibility to recommend charitable grantees over the course of time.   (Those inclined to sustain greater control as well as public disclosure may consider a private foundation instead.)  For more information on donor advised funds versus private foundations, see “A Symbiotic Relationship,” by Philip T. Tobin.  Those with carryover charitable deduction amounts should remember that gifts made in the current year must be deducted first, before any carryover contributions within the same category (for example, cash to public charities, 50 percent of AGI).5  Accordingly, before making any donations this year, clients may wish to have their tax advisors determine the maximum amount they could contribute this year and still fully utilize their existing carryover deduction.

3. Whom do you wish to benefit? In charting their philanthropic strategy, it remains critical for clients to always consider the ultimate beneficiaries of their largesse, whether a specific community or wider class of individuals.  Non-profit institutions actually serve as the intermediaries of philanthropic capital and vary in their efficacy.  Therefore, clients may wish to review the progress of their non-profit grantees in servicing these ultimate beneficiaries before extending further support.  The extent of this progress may lead clients to increase or decrease their contributions.  Annually reviewing the progress of an organization in supporting the client’s targeted constituency lends to a more deliberate philanthropic approach.

Philanthropy may also benefit the client’s family, particularly through cultivating the awareness and responsible behavior of children and grandchildren.  If clients seek to endow their family with a legacy of philanthropic values, they may use the giving season to actively engage younger family members through:

·       Volunteering as a family for a local cause or responding to a natural disaster;

·       Joining a site visit organized by a charity supported by the family; or

·       Having children select various charities after researching them online and presenting a case of support to their parents

4. Where do you wish to leave your impact? As systemic problems in health, the environment and other areas span borders, clients may seek to leave a global footprint though their philanthropy.  Whether clients seek to affect their immediate community or address a global issue, it remains critical to define the geographic area of interest and scan the landscape for existing resources that already address client’s chosen issue. 

Scanning has arisen as a common term within philanthropy to avoid duplication of efforts and resources in addressing a social or environmental problem.   Discussions with fellow donors and program officers of non-profit organizations within a client’s area of interest may complement the client’s own due diligence research.  This process of discovery, particularly with natural disasters that prompt immediate contributions, helps to direct your client’s philanthropic capital in a more productive and strategic manner.

5. What do you wish to accomplish with your philanthropy? As with any business plan, having a series of milestones for your clients to reach through their philanthropy helps to focus and measure their progress towards these goals.  Desired milestones may involve a quantitative goal, for example, to elevate test scores at a particular school by a certain margin within a specific time frame.  Alternatively, a client may seek to reach consensus among a government agency, certain business entities and other funders, to work towards a common objective within a certain time frame. 

Clients’ milestones may involve ambitious goals, which clients may adjust as they gain experience in their philanthropic journey.  The more important aspect of the milestones involves the discipline and accountability needed for philanthropists to track their own progress and deliberately chart their journey for the future.

As clients value comprehensive guidance on the management and succession of their wealth, reviewing these questions may prompt a more proactive instead of reactive approach to philanthropy.


1.     Internal Revenue Code Section 68(a)(2); Section 68(g), added by the Economic Growth and Tax Relief Reconciliation Act of 2001 (2001 EGTRRA), P.L. 107-16, Section 103(a).

2.     General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals, Department of the Treasury (February 2012).

3.     For taxable years beginning after 2012, the rate schedule is scheduled to return to the five-rate structure applicable to taxable years beginning in 1993 through 2000, namely, 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent.  Section 1(a)–(d); P.L. 107-16, Section 901(a)(1) (2001 EGTRRA sunset), as amended by the 2010 TRA, P.L. 111-312, Section 101(a) (two-year extension).

4.     Beginning in 2013, individual taxpayers making over $200,000 annually ($250,000 for married individuals who are filing jointly) will be subject to increased Medicare tax rates (2.35 percent, up from 1.45 percent) and an “unearned income” healthcare surtax of 3.8 percent on all interest, dividend, capital gain and passive business income.  IRC Section 1411.  Also beginning in 2013, a 0.90-percent Medicare tax will apply to wage income in excess of $200,000 for individuals and $250,000 for married couples filing jointly, in addition to the unlimited 1.45 percent Medicare tax that already applies to such income. IRC Section 3101(b)(2).

5.     IRC Section 170(d)(1); Treasury Regulations Section 1.170A-10.