Being philanthropic isn’t just about writing a check. In fact, clients expect their advisors to analyze their financial pictures to help find planning opportunities that maximize the value of gifts and optimize the effectiveness of their estates. Michelle Black, wealth advisory senior manager at Capital Group Private Client Services, looks at several of the ways advisors can help clients move beyond just writing a check and get the most positive result possible.

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For clients who are philanthropically motivated, it’s important as their advisor to be able to guide them through the options of how to maximize their impact. Some people think that it’s just about writing a check, but actually, as you know, there may be more effective ways to give. By helping clients understand their options, you're able to add value and continue to build their trust.

I think the cleanest way to think about it is in three steps. The first is how much they can give; the second is what they should give; and the third is whether there are any charitable vehicles that make sense to consider putting in place, instead of having them donate directly to charity by writing a check.

Now, let me focus for a moment on what they should give, because this question comes up a lot. Now, writing a check and giving cash is great, but appreciated stock is even better because you can avoid paying the capital gains tax.

You get a double benefit: a charitable income tax deduction and avoidance of any tax on any accumulated capital gains, resulting in a bigger bang for your buck. Beyond this, there are a number of giving vehicles that clients can set up to maximize the impact of their gift, and the right one depends on their objectives. For instance, private foundations are great for clients who want to maintain hands-on control and create a legacy of philanthropy by engaging their family in the foundation’s mission.

The catch is that there’s a 5 percent minimum annual payout and a lower deduction amount available than if one were to donate directly to a public charity, as well as a 1 to 2 percent excise tax payable on net investment income. For these reasons, many find it attractive to consider donor advised funds, commonly referred to as DAFs. Now, these are a lot easier to administer.

Clients can give cash, or appreciated securities to the DAF, and it’s treated like a public charity as it relates to deduction limits. Then, they don’t have to make charitable gifts from the fund until they’re ready. Unlike private foundations, there is no minimum distribution requirement for donor advised funds.

Now, DAFs are great for clients who want to front-end load their charitable deductions and they want to simplify their giving. Finally, for clients who have multiple objectives, there are more sophisticated legal structures, such as charitable remainder trust and charitable lead trust. I won’t go into the details here, but these are essentially split-interest trusts that are almost the mirror image of each other.

Charitable remainder trusts are great for clients who need an income stream but they want to diversify a low basis position. Any money leftover at the end of the term goes to the charitable beneficiary. Charitable lead trusts are great for someone who wants to make annual charitable donations but leave whatever is leftover to their heirs.

Now, they come with complex tax simplifications as do all of the other options. For that reason, it’s a good idea to always work closely with a client’s tax advisor before implementing any of these strategies.