BY WARREN S. HERSCH
‘Tis the season for giving. Among advisors active in the charitable planning arena, the closing weeks of 2008 will likely call to mind the many opportunities to help realize their affluent clients’ philanthropic ambitions. Question is, has the recent credit crisis and the prospect of a severe recession in 2009 put a damper on those ambitions?
To judge by the latest available statistics—from 2007—philanthropy of all types is on the rise. The Glenview, Ill.-based Giving USA Foundation estimated in June of this year that charitable contributions in the U.S. totaled $306.39 billion in 2007, exceeding $300 billion for “the first time in history.” The foundation’s annual report, “Giving USA 2008,” further notes that giving rose in 2007 by 3.9% (1% adjusted for inflation); and that every economic sector, except private foundations, projected increases in 2007.
That was then. Given the seismic events of the past few months, the results of next year’s report might look radically different. For advisors, the burning issue is not the contracting economy’s effect on overall giving, but on that part of the pie in which they have to role to play: using life insurance to help fund clients’ planned (or lifetime) gifts.
To a certain degree, sources tell National Underwriter, a client’s decision to pursue or put on hold charitable planning is insulated from the financial turmoil because the process is slow and time-intensive, often requiring many months or years for advisors to convert a client’s charitable inclinations into an actionable plan.
To the extent that clients are also intent on establishing a legacy to benefit their community or society, then philanthropic interests may also trump other financial considerations. Those, however, who are motivated chiefly by tax considerations are more likely to postpone gifting until market conditions and the tax environment become more favorable.
“Frankly, taxes are much less of an issue when you’re doing testamentary planning,” says Randy Siller, a family wealth advisor at Siller & Cohen, Rye Brook, N.Y. “But as asset valuations have declined in recent months, many of the tax incentives for doing lifetime gifting have gone away.”
Siller cites, for example, the inter vivos charitable remainder trust, long a favored vehicle among the affluent. By donating highly appreciated assets to the trust, donors can secure an income tax deduction. And by selling the assets inside the trust (executed to secure an income stream or interest for the themselves and a “remainder interest” for a designated charity) they can also avoid capital gains tax.