It may be the season of giving, but how exactly does one navigate the philanthropic landscape while also protecting one’s financial interests in this topsy-turvy economy? Lower Merion’s Adam Sherman has some tips on ways to share the wealth. A certified financial planner and a chartered life underwriter and consultant, Sherman is CEO of Firstrust Financial Resources in Center City. So you can take his advice to the bank.
MLT: How does your experience in estate planning relate to giving?
AS: Philanthropists tend to be on the higher net worth side, so the estate planning and giving work hand in hand. From an estate-planning perspective, most people aim to perpetuate as much wealth as possible to pass on to the next generation. But those at that [higher] level tend to want to leave some nice legacies to charities or other organizations they’re attached to. They also use insurance strategies to create the gifts.
MLT: How does that last part work?
AS: They may want to leave $1 million to the University of Pennsylvania, but they don’t want to give all the money up front. So they buy an insurance policy, making Penn the beneficiary. The premiums are tax deductible. If the IRS wasn’t offering a deductible to make the contribution, the client might not do it. There’s always some selfish motivation.
MLT: How do you know when you’re in an optimal position to give?
AS: When you feel you’ve got all your basic necessities covered with your existing income and net worth. Keep in mind that most philanthropists are older and have generally paid for their houses and for their kids to go to college. They’re basically living debt free.
MLT: Do you help clients decide where to give?
AS: Nobody can tell somebody else what organization they should be giving to. People have personal attachments, and most are driven by the economics of the gift itself.
MLT: What about how much to give?
AS: That’s the easier question. Philanthropists need to give within their means so the gift won’t hurt them financially. The rule of thumb is to not give more than 10 percent of your net worth. There should be no regret or remorse once the check is written.
MLT: How has the economy affected charitable giving?
AS: Now more than ever, charitable organizations are feeling the pain of the economic deterioration, and the wealth of affluent people has gone down greatly. Givers make charitable decisions based on their financial statements, which may be down 10-20 percent from where they were three or four years ago.
MLT: What’s the status of philanthropy on the Main Line?
AS: I’d say it’s a pretty healthy environment, but that’s not to say that it hasn’t been impacted negatively by the economy. The good thing is that there are always going to be people willing to step up when others who were once in that position must take a pass.
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