_Private Banking Philanthropy 101 Patricia Huang, 10.14.02
Giving money away can be just as complicated as making it. Private bankers help spread the wealth.
Private bankers help clients to guard their wealth; they also hold their hands when it's time to give some of it away.
"Many times clients are interested in donating, but they don't really have the people to sit down and have a dialogue with," says Nicholas Stonestreet, head of Trust & Wealth Structuring at Merrill Lynch International Private Client Group. "It's a really important part of private banking."
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_Stonestreet encourages his staff to ask clients about their philanthropic intentions. Like therapists exploring personal problems, charity experts at private banks can help donors think through their altruistic inclinations and motives.
Will the client get more out of giving while still alive or after death? Some may want a foundation to carry on their legacy forever; others may want the bequest spent out at some point.
The tax implications of giving are a frequent concern. Though the U.S. leads the world in tax breaks for charitable giving, other countries are catching up.
In recent years the U.K. has improved its Gift Aid plan, introduced in 1990 to allow charities to reclaim basic-rate tax (now 22%) on one-time cash donations of at least £250 ($390), by eliminating the minimum amount and allowing income tax deductions to those donating stock.
This year Canada indefinitely extended legislation that halves to 25% the amount of capital gain subject to tax for gifts of public securities made directly to charities.
Private bankers will help structure a donation to maximize the writeoff, selecting the best asset and even seeing to the completion of the transaction. Sometimes an offshore trust is advantageous for tax or other reasons; private banks have always known the score there.
As philanthropy becomes more widespread on the giver end, so too are receivers becoming more active. Banks can set up a screening service for pleas and proposals from would-be beneficiaries.
Researchers can also identify charities that meet a client's criteria, assist in establishing boards and policies for foundations, even act as secretary for the family office.
The fees for these services, as with many others in private banking, aren't low. At the Royal Bank of Canada, the cost ranges from 1% to 2% for a $1 million foundation, according to Jo-Anne Ryan of RBC in Toronto. But that's still less expensive than hiring a staff that could cost $70,000 a year and renting and furnishing office space for an additional $20,000.
"Giving away money is really hard," says Adele Simmons, a senior adviser to the World Economic Forum and a former president of the John D. & Catherine T. MacArthur Foundation, which has assets of $4.2 billion. "It takes a professional staff to evaluate a [charitable] organization, examine its accounts and assess whether or not its strategy is going to make a difference."
In a family situation, the private banker will help to imbue children with a sense of giving. Schroders Private Bank, for example, hosts seminars for adolescents to help them decide what causes they want to support and how, covering both local projects and efforts abroad.
Whether you're planning to give away $10,000 or $10 million, now or later, it can be every bit as challenging as an investment diversification. "Philanthropy really is another business," says Joanne Johnson, the managing director of J.P. Morgan's wealth advisory group. "And that's how people should approach it."