Dow Jones Newswires quotes Tony Martignetti on trustees for charitable trusts.
PRACTICE MANAGEMENT: Advisers Keep Hand On Charitable Assets
By Shelly Banjo
July 14, 2009
Copyright ©2009 Dow Jones & Company, Inc. All Rights Reserved
NEW YORK (Dow Jones)–To some financial advisers, charitable giving by clients can mean a loss of assets under management – and the fees that go with them. But advisers who participate in charitable planning can actually stand to gain.
With good planning, qualified advisers can keep managing those assets, say in a charitable trust, and build a closer relationship with clients in the process.
If an adviser doesn’t get involved, whatever firm the charity does business with will, says King McGlaughon, chief philanthropic officer for the newly formed Wells Fargo Philanthropic Services of Wells Fargo & Co. (WFC). He sees such an event as a lost opportunity.
“Our goal is to help the financial adviser stay involved both as an investment manager of the trust and play a key role as an adviser to the client,” McGlaughon said.
While a growth area for some advisers, trust management can require specialized legal, tax and investment expertise, as well as experience in managing relationships. Handling the fiduciary responsibilities, tax reporting and investments may not be easy for inexperienced advisers. Advisers with a background in providing financial advice are better suited than those who have mostly sold products, McGlaughon said.
An adviser must know how to manage the charitable trust’s investments for competing interests: the donor, and the charity or charities. For instance, a charitable remainder trust is set up so the donor gets an immediate income tax deduction and guaranteed income payments for life. At the donor’s death, the remaining principal goes to the charity. For that reason, the trust’s investments must be managed to benefit both the donor in the short term and the designated charity in the long run.
“Investing for income and growth are diametrically opposed,” said Tony Martignetti, managing director of Martignetti Planned Giving Advisors in New York.
Advisers can begin the conversation with clients by discussing how charitable giving can fit into an overall wealth plan and what gift techniques should be used.
Trusts should be designed with the help of a lawyer and accountant and must have a designated trustee or co-trustees. While clients or their advisers could serve as a trustee, financial professionals recommend using the adviser’s firm or other corporate trustee because they offer more expertise, permanence and independence.
“Financial advisers serving as trustee of a charitable trust is not something we would support. The burden of compliance that comes with being a trustee has gotten harder and most individuals aren’t familiar with the rules,” said David Ratcliffe, head of institutional philanthropy for Bank of AmericaMerrill Lynch (BAC).
The donor surrenders legal control of a charitable trust’s assets, but can have a say in management decisions by serving as a co-trustee.
Most midsize and large wealth management firms provide resources and support to advisers interested in charitable planning. Advisers could also pursue a professional designation in philanthropy such as the Chartered Advisor in Philanthropy designation offered at the American College in Bryn Mawr, Penn.
Shelly Banjo is a Getting Personal columnist who writes about wealth management and philanthropy; she covers topics including tax and estate planning, investment strategies, charitable giving and the independent sector. She can be reached at 212-416-2242 or by email at shelly.banjo@dowjones.com.