Philanthropic planning can help clients give more money to the organizations they want to support, as well as save donors more in taxes. However, donors often become overwhelmed and paralyzed by planning advice. To help overcome this analysis paralysis, advisors should follow a three-step process that focuses on: (1) investigation, (2) communication and (3) motivation.
Step 1: Investigation
When it comes to investigation, many advisors typically focus solely on matters relating to money—issues like reducing taxes, managing investments, achieving asset protection and preparing legal documents and structures. Most donors aren’t solely concerned about preparing the money for their family; they’re also worried about preparing their family for the money.
Accordingly, advisors need to focus on some of the softer issues that are important to donors, such as education of family members; mission, vision and values; communication; family philanthropy and transition of leadership. Ultimately, most donors would be willing to sacrifice some of that financial success and tax savings if it would help preserve family harmony.
The key to uncovering donors’ most important issues is for the advisor to ask the right questions. Advisors should be asking donors questions that will get them to verbally express what they explicitly need. It’s important for the donors to verbalize their own wants and needs so they can own their own problems, want a solution and look to their advisors for that solution. Examples of explicit needs questions that advisors can ask with regard to philanthropic planning include:
- How has uncertainty in the current environment impacted your charitable giving?
- In what ways have you documented your values and charitable goals?
- How prepared are your children to receive your wealth?
- What assets have you considered for charitable giving?
Step 2: Communication
At this point, donors have answered their advisor’s explicit needs questions, so it’s now up to the advisor to communicate solutions or strategies to address those explicit needs.
Stories. The best way to communicate philanthropic solutions and strategies to donors is through the use of stories. Stories are persuasive, compelling and memorable, and most importantly, a good story can elicit an emotional response from a donor, which is the key to leading a donor to action.
A two-hour dissertation on the benefits of trusts isn’t necessarily the most effective way to communicate the benefits of philanthropic planning. For clients deciding whether or not to implement a philanthropic and estate plan, a relatable story is much more persuasive, compelling and memorable than a detailed technical explanation of trusts. Even more importantly, such a story should elicit an emotional response, which helps lead donors to action. Humans aren’t thinkers who feel; we’re feelers who think.
Visual materials. Another great way for advisors to communicate with donors is through the use of visual materials, such as pictures, simple graphs and flowcharts. There has been a great deal of research on how people best learn information, and while not all individuals are the same when it comes to how they learn best, studies still support the idea that using visual aids for communication purposes is more effective than simply using words and numbers.
Step 3: Motivation
Motivation is the final and most important step of the process.
The cost of procrastination. In addition to showing donors the benefits of a strategy or solution, a good advisor must illustrate the cost of waiting. Demonstrating the cost of procrastination is a much more compelling way to motivate donors to take action, as opposed to only showing them the current benefits.
For instance, Emma and Frank are married business owners with a $25 million net worth and currently face a $5.656 million estate tax liability. An advisor could show Emma and Frank how a comprehensive plan—with both estate planning and philanthropic planning strategies—could eliminate the $5.656 million estate tax liability. However, that may not be enough to motivate Emma and Frank to take action now. The advisor should also demonstrate that if Emma and Frank fail to act quickly, assuming there are no tax law changes and their business continues to grow at a conservative 7.5 percent rate, their estate tax liability in 10 years would be $15.3 million. That is, Emma and Frank will be subject to an additional $9.7 million in estate taxes simply because they didn’t take immediate action.
Fear of death versus fear of disability and incapacity. Contrary to popular belief, fear of death generally isn’t a good motivating factor. When people think of death, their first thoughts aren’t about getting their philanthropic and estate plans in order but of loved ones, places they want to visit or even foods they will no longer get to eat.
There are some limited exceptions when death may be a motivating factor for planning, such as: (1) a death of a relative or friend; (2) a divorce, because most donors want to make sure that their former spouses don’t get any of their money; or (3) a deal, because a large liquidity transaction typically requires the consideration of many planning elements. However, these limited exceptions to motivating through fear of death depend on timing—which is a variable that not even the best advisor can control.
Fear of disability and incapacity, which is highly likely to occur before death, is often a better motivating factor. Ninety-two percent of older Americans (over the age of 65) suffer from heart disease, hypertension, diabetes and/or cancer; approximately 10 million individuals need help with eating, dressing, bathing and walking every day; and close to 5 million are victims of elder abuse each year. Moreover, disability and incapacity aren’t necessarily events that only happen later in life—they can strike any day, at any time. Most donors are more concerned about what’s going to happen with their money while they’re still alive but disabled or incapacitated, as opposed to what’s going to happen with their money after they’re dead.
Family philanthropy. Family philanthropy offers opportunities for family members of all ages to experience the joy of giving, and it’s one of the best ways for family members to learn to work together, which is a key component for helping create a legacy that will survive multiple generations. Family philanthropy helps to solidify family values, while family members work together, communicate with one another and learn to trust one another. Moreover, by making gifting decisions communally, younger family members can develop a wide variety of values that are necessary to prepare them to manage and expand the family’s wealth in the future. It’s not necessary for a family to have a private foundation or a substantial amount of money to establish a family philanthropy program. Donor-advised funds often serve as great resources for parents or grandparents to begin family philanthropy programs for younger generations. n
