Whether it is year-end planning, company volunteer programs or last-minute shopping, December is one of the most hectic times of the year. But don’t let the rush of the holidays deter you from engaging with clients on one of the most important financial planning topics—charitable giving.
These conversations must walk a tightrope between helping clients realize their desires to make an impact in the world and serving their financial and tax needs. Charitable planning can help achieve this balance and deepen meaningful client relationships.
And don’t forget: It’s never too late to start the conversation.
December typically marks the month when Americans most benevolently open hearts and wallets to support the causes and issues that are most important to them. In 2020, charitable giving in the U.S. reached a record $471.44 billion, according to Giving USA Foundation, and about 30 percent of that was given in December. In 2021, the giving season has gotten off to a strong start, with an estimated 35 million adults giving an estimated $2.7 billion during Giving Tuesday, a 9 percent increase over 2020.
With worries about the Omicron variant, climate change, economic inequality and other issues tearing at the fabric of civil society, charitable giving needs to do more than ever. So, what if you could help clients double the impact of their philanthropic giving? Through smart tax planning and growing opportunities to put philanthropic dollars to work in impact investing, more advisors and their clients are finding new ways to expand the power and positive feelings generated by philanthropic giving.
Impact investing — investments made with the intention of generating measurable social or environmental impact alongside a financial return — is a rapidly growing way that some philanthropists are putting charitable dollars to work even before they are granted. A 2020 impact investing survey by the Global Impact Investing Network, estimated that the global impact investing market is $715 billion, based on GIIN’s database of more than 1,700 impact investors.
Here are four ways to combine the generosity of the season with impact investments that can expand the impact of charitable giving:
Donate Appreciated Securities: Although a tax break is not the major motivation for most philanthropy, giving in a tax-smart way allows donors to give more and plan giving more strategically. And it is a smart strategy increasingly leveraged by wealth managers working with philanthropic clients. Giving long-term appreciated stocks, bonds and/or mutual funds allows clients to give to a charity and often get a full tax deduction on the fair market value of the securities. Since the securities are donated rather than sold, clients generally don't have to pay capital gains. That means 100 percent of the value of the donation goes to work towards a client’s charitable granting.
Use a Donor-Advised Fund to make Impact Investments: With about $160 billion in charitable assets, donor-advised funds are the nation’s fastest-growing philanthropic vehicle. This efficient, low-cost charitable structure allows donors to put charitable dollars to work in a strategic way, enabling advisors to integrate charitable planning into a wealth-management offering. Increasingly, advisors and their clients are also finding ways to transform the investable charitable assets in donor advised funds into a resource for good.
At ImpactAssets, an impact investing firm with a $2.0 billion donor advised fund, donors are investing in breakthrough solutions to some of the world’s biggest global challenges, through a impact investment platform of private debt and equity funds, managed impact strategies, and custom investing. Other funds, including many community foundations across the country, are also incorporating impact investment options into their menu of investments. By activating this vast pool of philanthropic capital already set aside to do good rather than sitting idly in an index fund, donor advised funds have the power to accelerate transformative change.
Extend Philanthropy Across Generations: Making philanthropy and impact investing a family activity is a powerful way to extend deeply personal values to next generations and to engage with next generation. Advisors who can help high-net-worth clients develop a smart, multi-generational strategic philanthropic mission will become an entrusted resource across generations. The affluent are greatly drawn to the opportunity to create a legacy and instill their values towards their children during their lifetime. The learning and values exchange goes both ways. As millennials move up the ranks in business or take charge of family wealth, many are showing their elders how to put more of their family’s wealth to work for good.
Double Down with Causes You Care About: At ImpactAssets, we have also found that activated clients and their advisors are maximizing their charitable impact by aligning giving and impact investing made with charitable dollars. At ImpactAssets, donors are using their donor advised fund to “double down” by both donating to nonprofits and investing in related for profit companies. For example, clients have invested in BlueNalu, a business leader in cellular aquaculture, and also supported non-profits fighting to save our oceans. Clients see this “invest and donate” strategy as a practical means of addressing complicated issues. Both charitable organizations and innovative social enterprises have a role to play in solving the world’s greatest challenges.
Helping clients make charitable dollars go further with strategic giving and impact investing is a benefit to charities, clients and advisors alike. This giving season, challenge yourself and your clients to act with increased urgency in responding to the climate crisis, and other systemic- challenges facing society. Your efforts can be a catalytic resource to fund social enterprises and move fast and fearlessly to create impact.
Amy Bennett is Chief Marketing Officer at ImpactAssets
© ImpactAssets
Read more commentaries by ImpactAssets