Advising Clients after a Trigger Event

Guiding your client to philanthropy after the loss of a spouse can provide focus, meaning and the fulfillment of charitable dreams.

Within nine months after losing her husband to cancer, Cyndie McLachlan, then 52 and living in Chicago, had taken some of the wealth he had left her and used it to seed her own foundation. The idea came from her attorney, Richard Thies, who turned to her during one of the meetings they had to sort through her husband’s estate and said, “You ought to think about starting a foundation.”

At the time, McLachlan thought he was kidding: she had not been raised to take much of a leadership role in anything, and didn’t know anything about giving money away. Her three kids convinced her otherwise though, and in 1994 she founded The Girl’s Best Friend Foundation to benefit programs that empower girls and young women.

Thies, an estate planner at Wildman Harrold, says he regularly suggests philanthropy to clients who have been recently widowed. If the family has not yet engaged in charitable planning, a death provides a reason for the surviving spouse to reevaluate who will inherit the estate, and what tax burden those heirs will face. More importantly, clients who are amenable to philanthropy find that it provides a positive focus right when one is badly needed.

“It took on its own life and took my life with it,” says McLachlan of her foundation, for which she won the Changing the Face of Philanthropy Award in 2001 from the Women’s Funding Network. “It didn’t dismiss the chapter of my marriage, but it began another chapter that would never have happened without that marriage.”

Approaching Clients with Sensitivity
Professionals suggest waiting about a year after the death of a spouse before approaching the client about philanthropy, or as long as it takes before he or she can make sound decisions about the future. Not everyone will embrace the idea.

“It has to be a situation where the person really wants to be active in the community,” says Kathy Schrader, director of financial and estate planning at the Greater Milwaukee Foundation. Schrader recommends that advisors ask their clients whether their spouses had supported any particular causes, and whether they want to continue that support. That way, philanthropy can be a way to honor and remember someone.

While estate planners can, and some would say should, broach philanthropy as early as their first meeting with a new client, a young and healthy individual may have other priorities. “When you’re planning for a husband and wife, there’s a lot of uncertainty about what the surviving spouse will need to live on,” says Alan Rothschild, an estate planning attorney in Columbus, Georgia, and member of the Real Property, Probate and Trust Section Council of the American Bar Association.

There are ways that a couple can provide for a surviving spouse: by naming a charity as a contingent beneficiary, for example, so that a spouse could give a retirement fund to it if he or she had enough income to survive, or by establishing a charitable remainder trust, the income of which could go to a surviving spouse. Still, clients are sometimes reluctant to take those steps when both husband and wife are alive. “When one spouse dies, it brings a lot of clarity,” Rothschild continues. “You have all of this money, and now it just has to take care of one person. There’s also the possibility that if someone had been the caregiver to an ailing spouse, he or she will have considerable time to devote to charitable efforts.”

Helping Clients Get Started
Once resolved to share their wealth, clients have numerous options. As for the type of asset to be donated, retirement funds are favorite targets, as they are subject to income taxes as well as estate taxes if they are passed to children. As for the vehicle, donor advised funds have the advantage, compared to private foundations, of qualifying for a higher tax deduction, carrying lower expenses, and being relatively easy to set up—so easy, in fact, that it is possible, if the client desires, to establish one quickly after a death to accept bereavement gifts from friends and family.

A direct planned gift to one’s favorite institution also earns a full tax deduction, and it may very well make the most sense. But it is worth considering that a donor advised fund or a foundation has other advantages. Either can be designed to let children assume control after the founder’s death or help make decisions while the founder is alive. These vehicles give heirs a say over how that money is distributed and encourage their own philanthropic tendencies. “Donor advised funds are a different kind of inheritance for kids,” says Schrader. “If they are the type who would be giving money away anyway, it’s as if they will receive that money in pocket, with no taxes deducted.”

Matthew Schuerman is a freelance writer based in Brooklyn, New York.
Copyright 2004 Community Foundations of America
Used with permission

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