It’s critical for advisors, their firms, asset managers and other industry participants to balance establishing best practices with current clients while shifting service and product strategies to the future profile of the high-net-worth demographic.
Recent data from Cerulli Associates projects that $124 trillion in wealth will be transferred to the next generation over the next quarter century. That’s great, but only 15% of that money ($18 trillion) will go to charity. While $18 trillion is a ton of money, the amount could be much higher if recipients of that wealth knew more about what they could do for it. The same goes for their advisors.
This is the time of year when many advisors pay lip service to philanthropy. They dutifully remind clients that they can give appreciated stock or open a donor-advised fund (DAF). But those attempts to assist with planned giving come with as much enthusiasm as “get a head start on your tax planning” or “don’t forget to schedule a colonoscopy if you’re over 40.”
Their hearts aren’t into it.
A good friend recently spoke to a group of estate-planning attorneys, financial advisors and fundraisers. He gave a very basic talk about charitable giving: “Give appreciated stock, don’t give cash,” he advised. He received a standing ovation and was mobbed afterward by people wanting to talk to him.
I was happy for my friend, but it struck me that, as a profession, we need to do a much better job of educating our clients (and ourselves) about the importance of charitable giving. By the way, helping your clients set up a planned giving strategy isn’t going to migrate assets out of their accounts. It won’t dent your AUM.
Another issue is that the typical planned giving officer remains in their job for only 18 months at any given charity. It’s pretty hard to have giving continuity and build donor relationships (and trust) when there’s constant turnover, thin staffing, limited bonus potential and burnout among giving officers seeking donations. That’s where you come in.
Education Is the Key
When it comes to charitable giving, we have an enormous education gap. The public is uninformed. Planned giving professionals are often undertrained and uninformed. The legal and financial community is uninformed. “Write me a check” isn’t a strategy. And the higher up the income ladder you go, the more problematic that becomes. The wealthier people are, the smaller their relative asset allocation is to cash. They don’t want to be writing checks from a bank account. They want more sophisticated strategies for transferring assets smoothly and tax-efficiently, where they can make a big impact with their gift and protect their family.
The mass media, which ostensibly educates the public, isn’t helping the perception of large-scale charitable giving as a “tax-dodge” for the super-wealthy.
Nvidia CEO Jensen Huang and Tesla/SpaceX founder Elon Musk have been taken to task for abusing DAFs to allegedly shield billions of dollars of wealth from taxes—while not giving that money to charity. Let me be clear: that money is out of their estates. As I explained to WealthManagement.com readers, billionaires like Musk can’t use that money for any purpose once it’s in a DAF. And it’s making its way to charitable causes. Just remember gifts of that size can’t be transferred all at once and all to the same recipient without dire consequences.
The New York Times recently wrote a lengthy article chastising Huang, his wife, and his attorneys for using a DAF to avoid $8 billion in estate taxes. Here are some things that may be confusing to your clients.
NYT: “The tax system operates differently for the wealthiest Americans. Creative lawyers have stitched together obscure regulations, court decisions and narrow rulings to help the rich pass along their fortunes.”
In reality, the tax system is the same for all of us.
NYT: “One mechanism is the intentionally defective grantor trust (IDGT) — or, as estate planners have nicknamed it: ‘I Dig It.’ It uses a complicated borrowing strategy to bypass a federal gift tax limit. The gift tax prevents rich people from giving heirs all their money before they die in order to avoid the estate tax.”
In reality, you want to transfer assets that are expected to grow out of your estate now. This is just good, thoughtful planning. If Nvidia had been a flop, then the intentionally defective grantor trust would have been ineffective as a strategy. The risk is on the client, too.
NYT: “By splitting up ownership among family members, wealthy Americans can also claim that assets moved into the trust are worth less than their previous market value. Trump’s family did this with his father’s portfolio of New York City properties in the 1990s, cutting his gift and estate tax bills. In 2017, Trump’s Treasury Department withdrew proposed regulations that would have curtailed these discounts.”
In reality, getting a discount on an asset because you don’t have 100% ownership or control is also well-settled law. No one would pay full price for something they have no say over.
NYT: “Nvidia’s C.E.O., Jensen Huang, who uses several estate-tax-cutting strategies, including an ‘I Dig It.’ He also has funded something called a donor-advised fund, which reduces his eventual estate tax bill even if that money never goes to charity. He’s on pace to avoid more than $8 billion in estate taxes — or about a quarter of what the United States collects annually from the tax.”
In reality, that money has already been given to charity through a DAF. It may not have reached the end user charity yet, but the funds will get there when Huang and his family identify the causes they believe in and want to support. Meanwhile, the Huang family receives no benefit from these funds because they’re out of the estate. The $8 billion of estate taxes means roughly a $20 billion gift based on a tax rate of 40%. Why does this make anyone mad?
Tidal Wave of Boomer Business Owners Selling
Another opportunity for advisors is to help all the exiting baby boomer business owners invest some of their windfall tax-efficiently into charitable causes. The year 1960 was the peak birth year of the Baby Boom, so that means record numbers of people are turning 65 in 2025, this coming year. Retiring Boomer business owners will sell or bequeath $10 trillion worth of assets over the next two decades – from more than 12 million privately owned businesses.
Randy A. Fox, CFP, AEP is the founder of Two Hawks Family Office Services. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker.
