We continue our series on philanthropy and wealth management, talking to Wilmington Trust.

As part of our continuing examination of trends in philanthropy, this publication has interviewed Carol G Kroch, who is national director of philanthropic planning at Wilmington Trust. The organization is prominent in addressing wealth planning, and argues that philanthropy is a core function, not an add-on.

In the jurisdictions that you operate in, what sort of trends do you see in terms of what causes people want to support and why? What causes/objectives seem to be gaining ground, staying the same, or losing some momentum?
I tend to see the planning of the philanthropic structure or outright gift, not the selection of the charities. There’s a lot of data from Giving USA that shows changes over time in US charitable giving.

Are you noticing differences in philanthropic goals/objectives depending on which countries people come from, their life experiences, whether they are self-made, inheritors, etc?  
Again, I tend to focus more on the structure rather than the charities ultimately supported. And my experience has been almost entirely US charitable giving focused. Life experiences often seem to impact charitable giving; for example, many people support the college or university they attended, and many people donate to healthcare institutions that have provided services to them or family members.  

Self-made individuals, particularly those who have created and sold closely held businesses, sometimes look to philanthropy to provide a different vehicle for the family to gather around. Inheritors may have a desire to promote the legacy of the family member who created the wealth they inherited, but there are also generational differences in giving, and the next generation does not always follow the charitable giving preferences of the senior generation.

When you talk to clients, in your experience is it the client or advisor who brings up philanthropy first? Is this changing? If it is the client, what do they often say? If it is the advisor, what does the advisor say?
I tend to be brought in to the conversation after the interest is identified by an advisor on the client team or a relationship manager. In talking to advisors, philanthropy often comes up as part of a discussion about the client’s short- and long-term goals. This may be initiated either by the client or the advisor.  

Philanthropy can be a "good coalescing vehicle for a family", referring to how the subject can draw family members together and create reasons to gather, often an issue when a parent passes away and families are geographically dispersed. We find that this is also of benefit after a family sells a family business and needs another vehicle to bring the family together. 

In your view what are the main added-value offerings that you can give to a client in helping their philanthropy goals? How has your organization developed these in recent years (types of expertise, reporting, due diligence checks on charities, access, connections with the beneficiaries of the philanthropy, engagement of children, others)? Have you recruited more people to handle this work, invested in resources, etc?  
We view helping clients to achieve their philanthropic goals as central to our overall work with them as a wealth manager. We have and maintain a strong commitment of staff and resources to this space. In addition, we have staff dedicated to ESG investing, philanthropic support and education, providing administrative services to private foundations and charitable trusts, providing family office services, and engagement with the next generation.   
   
To what extent is philanthropy now sitting inside a broader field of “environmental, social and governance (ESG)-focused activity, rather than as a standalone advisory line?  
We see ESG investing as an investment tool that both philanthropies and private individuals may use. ESG investing is an investment discipline that considers environmental, social and governance criteria to achieve financial objectives. It is certainly of increasing interest to both our charitable and non-charitable clients. Philanthropy in our view is broader, as it goes to the structure and  support of charitable causes, not merely the investment of the assets located in a philanthropic vehicle.  

How do you think firms should position the philanthropy offering? Should it be a core offering, or an add-on? Should firms charge separately for philanthropy advice and support, or include it in an overall fee?
We regard philanthropy as part of our core offering, because philanthropy is so important to many of our clients. Through our comprehensive advice, we educate clients and help them to plan, structure, and implement appropriate charitable vehicles. There is generally no additional charge for our philanthropic guidance - it is an integral part of who we are and what we do. We do also offer extensive back-office administrative capabilities for charitable vehicles, which can be offered a la carte, with a customized fee.

In what ways can private banks, wealth managers and other advisors to HNW individuals use philanthropy expertise and support as a business differentiator?
Our differentiator is that we can provide high level consultative advice and implementation to our clients. (Carol Kroch served as the American Bar Association Advisor on the Uniform Prudent Management of Institutional Funds Act, which governs endowment investment and spending in almost every state.)  Across the firm, we have sophisticated and knowledgeable staff who can bring new philanthropic ideas to clients, help them implement those ideas, and then administer the vehicles created.  

There’s quite a “toolbox” today for giving: Donor Advised Funds in the UK and US, private foundations, trusts of various kinds, etc. Depending on whether one is in a common law or civil law center, certain structures work better than others. Do you see any trends in structures becoming more, less popular, and why?  
I can only comment on the US charitable “toolbox.”  In the US there are a variety of structures that work well for different assets and different donor goals. Donor advised funds provide an opportunity to make a tax deductible gift in one year (assuming that the donor has deductions that exceed the standard deduction) and provide support to charities in future years. DAFs have become increasingly popular for donors seeking to bunch their deductions so that they can itemize deductions.

And they have also grown in popularity for gifts of complex assets, such as closely held business stock, that is often not suitable for a private foundation. However, we see continued interest in private foundations for families who want to engage in long-term planning for significant philanthropic assets. Many donors and advisors are becoming more savvy about picking the right structure for the kind of assets to be donated and to meet the philanthropic goals of the donor. For example, charitable remainder and charitable lead trusts allow families to provide both for family members and charity. Gifts of appreciated property, even tangible personal property such as paintings, can be structured to obtain a full fair market value deduction. However, a number of rules need to be followed to achieve the hoped for result.   

We have to talk about tax. Tax breaks can motivate some giving – where do you see tax changes posing a threat or creating opportunities in certain countries?
In the US, I don’t see any tax changes posing a significant “threat” to charitable giving. US tax law changes effective 2018 that increased the standard deduction have reduced the number of taxpayers who can itemize deductions, but there are many motivations beyond tax savings in making charitable gifts.  

There are also many ways for non-itemizers to make tax-effective gifts. For example, a donor may give appreciated stock to a charity and obtain a full fair market value deduction, while not paying any capital gains tax on the built-in gains.  

Further, if a donor is over aged 70 and a half, a distribution can be made directly to a qualified charity from an IRA, eliminating the tax that would otherwise be due on an IRA distribution.  

Also, some donors will be able to “bunch” into one-year donations that would have been made over multiple years, so that the bunched gift is large enough to be treated as an itemized deduction.

US transfer tax exemptions significantly increased in 2018, so there is less of a federal transfer tax incentive for charitable giving at death. However, many states impose an estate or inheritance tax at a lower exemption level. Further, there are assets such as retirement plans and IRA assets that are subject to a significant income tax burden on the heirs, so there are still tax efficiencies in charitable giving at death for donors who will fall under the exemption levels.

And, of course, it is important to remember that these tax changes are scheduled to revert to prior law at the end of 2025.  

(Editor's note: We also talked about the use of Charitable Remainder Trusts and Charitable Lead Trusts, and how these are important parts of the philanthropy toolkit as well as useful estate planning vehicles. The CRT distributes an annual amount to individuals for a term or their lives and then distributes the remainder to charity. The CRT structure allows income and capital gains taxes to be deferred until paid to the individual beneficiaries. Thus a CRT can diversify and incur capital gains that will not be taxed until distributed to individual beneficiaries. A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries. The trust can provide both income and estate tax benefits.)