Shh! Don’t Call it a “Charitable” Strategy

Advanced charitable strategies like charitable remainder trusts (CRTs) are one of the few remaining ways that individuals can lower their taxes significantly if the circumstances fit.  So why aren’t CRTs and other similar strategies more widely used?

It is a truism – backed by years of personal anecdotal experience – that if someone is not charitably inclined, they generally are not going to be open to considering a charitable strategy for themselves, even if that strategy would save them oodles of taxes.

Why is that? Because there is always a trade-off.  If the government is going to give you a benefit for giving to charity, you are going to have to give something up, usually loss of control.

According to the 2016 U.S. Trust Study of High Net Worth Philanthropy, the top reason given by respondents as to why they do not give to charity was: “My priority is to take care of my family’s needs.

This matches up to my experience in attempting to persuade clients who are not overly charitable to consider charitable strategies.  If the primary motivation is to avoid taxes, while attractive, the trade-off that comes with a strategy like the CRT is perceived as not worth it.

That means we advisors need to think creatively about how we describe strategies like CRTs to non-charitable clients.

A fellow financial advisor and friend of mine has concluded that in order to get a non-charitable client to consider a CRT, he does not use the word “charitable.”  In fact, he doesn’t even call it a CRT or refer to it as a charitable remainder trust.  He calls it a “tax-exempt trust,” which a CRT is.

Only after outlining the significant tax benefits of the “tax-exempt trust,” by which time the client’s interest is quite strong, does my friend let on that this is in fact a charitable vehicle.  By then, the client’s objection to anything charitable has been removed because he or she has understood the inherent power of the CRT.

My friend has found that if he were to say, “There’s a great strategy that will work for you.  It’s called a charitable remainder trust,” he has already lost the client, usually at the word “charitable.”

But by saying, “You put your highly-appreciated asset in a tax-exempt trust, where we can sell it and defer all the capital gains, and you get a large tax deduction as well,” the client suddenly is left wanting to know more.  The walls that would normally go up at hearing the word “charitable” are no longer there.

Is it wrong to avoid using the word “charitable” when first pitching a charitable strategy like a CRT?  Not for my friend, who has been very effective with this approach.

I happen to think his approach is not only smart, it is good for the client.  As a fiduciary, I am required to act in the best interest of my clients. Thus, if I am presenting a series of options and recommendations to a client, if a CRT or other charitable strategy is a viable option, how could I not at least present it?  Of course, in all of this the client needs to be made aware of the other considerations when using a CRT, such as the fact that assets in the CRT are removed from the client’s estate (and, depending on the client’s goals, may require life insurance to “replace” those assets for heirs).

Call it marketing or positioning or just sales – a CRT by any other name is still a CRT.  If referring to a CRT as a “tax-exempt trust” gets more clients to establish CRTs than otherwise would, isn’t that a net positive for the world at large?

Let’s face it: not everyone is charitable, and that fact won’t change.  But by thinking about our words, and knowing our clients and their values, we professional advisors can tilt the scales just slightly so that powerful charitable vehicles like the CRT have a greater chance of being considered.

Here’s to the “tax-exempt trust”!

Questions or comments?  Contact me on Twitter @juanros or LinkedIn.

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