When should advisors ask clients about charity?

Often. Only 25% of advisors frequently discuss charitable giving with clients, according to a 2010 survey by Mackenzie Financial. That’s because talking about charity requires that you get personal with clients.

“The comfort level among advisors remains relatively low, but it’s growing,” says Brad Offman, vice president, strategic philanthropy at Mackenzie Financial. “The biggest challenges are becoming comfortable with the technical subject matter and [not] seeing it as too private a subject.”

How to ask

If you don’t raise the topic, nobody will. In the Mackenzie survey, fewer than 10% of advisors said clients regularly initiate charitable conversations.

The simplest question—“do you give to charity, and if so, how?”—is an effective starting point.

“Then I ask, ‘Are you open to ways of giving that benefit both the charity and yourself?’ ” says Jay Nadler, an insurance and tax strategist with Marathon Benefit Corp. in Calgary. He notes that by asking the question this way, and then laying out the potential benefits, a firm “No” from a client changes to, “I’ve never thought about it.” Those benefits can include:

  • legacy building
  • tax savings
  • something meaningful to focus on during retirement
  • passing values to a younger generation
  • supporting causes
  • restructuring existing giving to have a greater impact for both donor and recipient

Events that commonly trigger charitable giving include major life transitions such as receiving an inheritance or selling a business. Estate and tax planning are also times when you can bring up philanthropy.

Around each planning exercise, a list of questions will help you broach the subject at the right time, in the right way. External resources will build your technical knowledge (go to advisor.ca/charity for a list).

The business case for talking charity is clear. Besides potential new sales, such as life insurance, you can attract wealthy clients, who dominate the philanthropic sphere, and build deeper relationships with existing clients by knowing how to fold charitable giving into a tax and investment strategy. Also, charity draws on many areas of financial expertise, making it a natural way to build your referral business.

Here are four times to bring up charity.

1. Tax planning

The majority of charitable giving occurs in the final few months of each year to capture tax savings. So it’s the easiest entry point to philanthropy for advisors.

“Advisors are more comfortable bringing it up in a tax-based context,” Offman says. It’s easier to say, “Here’s how much you’ll save in taxes” than to ask how a client wants to be remembered.

Changes to Canada’s tax system have made it increasingly attractive to use charitable donations to offset taxes. Used correctly, charitable tax credits can offset up to 75% of net income, and up to 100% of net income upon death.

Technical knowledge is important, but so is understanding a client’s motives for giving.

According to Imagine Canada, a group that advocates for the charitable sector, income tax credits rank fifth on the list of top reasons for philanthropy, behind compassion for a cause, having been personally affected by something a charity supports and fulfilling religious beliefs.

Tax returns often reveal clues that a client is inclined toward philanthropy.

“When I review my clients’ tax returns, I’m always drawn to the donations section,” says Keith Thomson, managing director of Stonegate Private Counsel in Toronto. “If I see that a client gives to the Canadian Cancer Society or Sick Kids Hospital, I ask what motivated them.”

No one’s ever told him it’s none of his business. Instead, “What I often get are unbelievable stories about how their kid was saved at age five and it has prompted annual donations,” Thomson says.

“From that comes further conversations in which I can ask whether they are interested in making their existing giving more effective for both sides.”

2. Estate planning

In terms of estate planning, charity is typically motivated by a desire to create a legacy, share values with children and grandchildren, and save taxes.

Thomson finds it’s easy to get clients’ attention.

The typical approach to estate planning pays CRA first, then family and friends. If there’s anything left, charity comes into play.

Thomson tells clients that by using a mix of one-time or structured giving, a donation of securities or a life insurance policy, family can be paid first, charity second and CRA last.

Another effective exercise: present your client’s anticipated tax bill upon death, based on current assets.

“People are often quite shocked,” Offman says, adding, “It’s a great opportunity to say, ‘Here are some ways to make that tax bill go away.’ Charitable giving is the easiest way to make that happen.”

If your client already gives, propose reallocating a share of that cash to a life insurance policy that names the charity as beneficiary. This shifts existing giving toward a tool that will lower your client’s estate tax bill and produce a significant windfall.

Your clients may know what causes they want to support, or they may want to capitalize on savings from tax credits, but not yet know which charity fulfills that desire.

“Advisors may feel uncomfortable recommending specific charities to clients,” says Anne Brayley, vice president, philanthropic services at the Toronto Community Foundation.

Take a nuanced role in this matter, offering support and resources without suggesting charities for clients to support outright.

The CRA’s website and tools like Place2Give offer clients the opportunity to review charities. Community foundations can help them explore local options.

3. Inheritance

Older Canadians will be transferring at least $1 trillion to their baby boomer children over the next two decades.

“That money is going to one of four places: taxes, inheritances, back into the market or charity,” says Gena Rotstein, founder of Dexterity Consulting in Calgary, which specializes in helping advisors work with clients on philanthropy. “Wealth managers are beautifully positioned to redirect this money [away from] taxes,” using charity.

For boomers who already have financial security, charity is expected to play a significant role in this wealth transfer; either as a result of the recipient’s values, tax-saving strategies or the desire to honour the memory of a deceased family member.

“Many wealth management plans allow families to take care of themselves without counting on this injection of income,” says Anne Brayley, vice president, philanthropic services with the Toronto Community Foundation. So when a windfall occurs, you can ask, “Is there anything you would like to do outside of your existing plan?”

Sometimes a charitable gift is a one-time offering, but many people wishing to honour a family member’s memory instead choose a structured giving option such as a donor-advised fund or, for more significant amounts, a foundation.

“The advisor will know whether the client needs the money or not,” Offman says. “[You might] say, ‘Even without this money from your mother, you are comfortable. Have you considered philanthropy both as a part of your financial strategy and as an opportunity to recognize her memory?’ ”

4. Selling a business

The sale of a business is exciting, but it can also produce the largest tax bill of a client’s life. So this presents the opportunity to make a significant contribution to a favoured cause.

Yet, “often philanthropy is the last thing that’s thought of,” says Malcolm Burrows, who heads philanthropic advisory services at Scotia Private Client Group. “It’s the advisor’s role to ask what will happen when [there’s] a sudden influx of assets.”

Burrows recommends showing the client the estimated tax stemming from the company sale. The same applies if a company in which your client owns stocks is sold, and generates significant income for shareholders. “By knowing where the taxes are going to land, you can decide whether you want it to be channelled through taxes or through charity,” says Burrows.

Timing is everything.

“The ideal time to talk about this is not when they’re preoccupied with getting the right price, but sometime before the deal closes,” says Denise Castonguay, executive director of Canada Gives. “As soon as they’re in a position to think about the taxable dollar amount, these talks can start to happen.”

Consider how to make the donation. A foundation takes months to formalize and must be established well in advance of the deal’s close, while a donor-advised fund can be established on short notice.