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Certain retirees give away too much of their savings, advisors lament. Others cling to their wealth more than necessary. Both can be a problem.

What should advisors do to help their retiree clients achieve a happy medium?

“Charitable giving is a very personal decision,” said Lisa Featherngill, national director of wealth planning at Comerica Wealth Management in Winston-Salem, N.C. For clients who are charitably inclined, she said, the giving must be figured into annual budgeting “so that the individual can plan how much is available.”

“You want to advise them to do it in a smart way,” concurred Kelly LaVigne at Minneapolis-based Allianz Life Insurance Company of North America. “Retirees should not give away their hard-earned money aimlessly.”

Defining Goals

For a philanthropic plan to be effective, it’s important to “understand what [a client’s] intent is, because there are so many different ways to be charitable,” said Thomas Pontius, senior financial planner at Kayne Anderson Rudnick in Los Angeles.

A well-put-together financial plan should tell clients “the impact they can make and when they can make it,” said Joseph Maier, director of wealth strategy at Johnson Financial Group in Racine, Wisc.

“We aren’t there to control but to support clients in meeting their goals,” added Dustin Wolk at Crescent Grove Advisors in Milwaukee.

Options For Giving

Clients who want to make donations have several options. Christopher Van Buren at LVW Advisors in Pittsford, N.Y., cited choices such as “utilizing a donor advised fund or sending funds directly to the charity.” Donor advised funds, which pool donations from multiple donors, are often more tax-efficient than direct donations, he noted.

G. Ward Keever, president and CEO of Covenant Wealth Strategies in Wilmington, Del., urges charitably inclined clients who are 70 and a half or older to do their giving through qualified charitable distributions (QCDs). “This strategy allows money to flow directly from a client’s IRA to charities of their choice,” he said.

The limit on these transfers has been raised this year to $105,000, he said, and can count toward required minimum distributions—referring to the amount that must be withdrawn from tax-advantaged retirement accounts every year after reaching age 73.

QCDs are like tax-free money, he said, because they don’t count toward adjusted gross income. This also means they won’t reduce clients’ Social Security checks or force a surcharge on future Medicare premiums, he explained.

Another strategy he recommends to some clients is naming charities as beneficiaries of retirement accounts. If these assets are left to individuals other than a spouse or other close family member, they will likely be taxed, he said, “but when left to a charity, the entire amount goes tax free.” (He suggested purchasing life insurance for any loved ones you don’t want to “disinherit.”)

Steve Parrish, St. Augustine, Fla.-based attorney and professor of practice at the American College of Financial Services, highlighted charitable remainder trusts (CRTs), particularly for affluent retiree clients.

CRTs are “split-interest irrevocable trusts,” he said, which let you donate assets to charity while still drawing income. The trust distributes funds to the grantor or other beneficiary for a specific time period, after which all remaining money goes to a designated charity, he said.

Charitable remainder trusts are tax-exempt and reduce the grantor’s taxable income.

The Over-Generous Client

If a client is giving away too much, it should become obvious at regular financial reviews. How to deal with it is less obvious.

“Excessive gifting in retirement is sometimes an indicator of loneliness or depression,” observed Parrish. Gifting can give clients a “mental rush,” he said. “An advisor can help by showing the retiree the consequences of unbridled gifting, but it must be done in a way that is nonjudgemental.”

It becomes a problem when it “jeopardizes the client’s financial independence,” shared Jaime Eckels, a partner at Plante Moran Financial Advisors in Auburn Hills, Mich.

Such situations invariably lead to some tough talk.

Elena Ladygina at Veris Wealth Partners in New York City reminds clients of the flight attendant’s instructions before take-off: Put your own oxygen mask on first, before helping others. “First you need to ensure your own financial survival, be certain that your long-term plan is well thought-out and you have capital set aside to cover your retirement needs,” she said. “If you run out of funds to take care of yourself, you will not be able to help anyone.”

Robin Haire at Haire Wealth Management in Tupelo, Miss., expressed a similar sentiment. “Supporting loved ones is a touchy subject,” he said. “We tell clients that if they are contributing to a loved one’s lifestyle in an amount that has a comma in the figure, we need to review their financial plan to make sure they have budgeted for this.”

Tightfisted Clients

Other clients, however, are afraid to give anything away—even if there are tax advantages. How do advisors deal with them?

“It’s hard to modify what was once the good habit of saving to one of balancing things out and reaping the harvest of the seeds that were sown,” said Richard Peck of Richard C. Peck Consulting in Belmont, N.C., and an ambassador with The American College of Financial Services. “Running projections about expected future income and expenses is helpful.”

He further noted that talking about the tax advantages of charitable donations can be “enlightening and encouraging.”

For example, gifting appreciated securities from non-retirement investment accounts “can bypass the gain and subsequent tax liability,” said Marshall Nelson of Crewe Advisors in Salt Lake City. “If a security with a cost basis of $5,000 has appreciated to a value of $8,000, the client can give an $8,000 gift to charity, and [the tax on] the $3,000 gain is then bypassed.”

Yet the subject is a touchy one and some clients might question if it is any of the advisor's business. “It’s not a matter of telling a client that he or she is not generous enough,” stressed Gerald Goldberg, CEO and co-founder of GYL Financial Synergies in West Hartford, Conn. “It’s about engaging with your client in a deeper way, helping them to think about their life’s goals and values and what their money means.”

It’s not always an easy conversation, he conceded. One strategy he uses is to start with an open-ended question about what the client finds most inspirational in the world—or most troubling. “You may help your clients have an epiphany that moves them to change the way they’re giving,” he said.

“If a client is concerned about their money not lasting long enough, it may be beneficial to discuss legacy gifts,” said Jennifer Ashley at Girard, a Univest Wealth division in Souderton, Pa. As part of her planning process with clients, she asks them to “consider whether they want to make an impact today, tomorrow, or post-lifetime.”

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