Charitable Giving for Baby Boomers

By Christopher J. Clarkson, CFA
Director of Bernstein’s Wealth Management Group

Many baby boomers are strongly committed to making the world a better place, so it is hardly surprising that large numbers have turned to charitable giving. Reuters reports that U.S. baby boomers are on track to give some $100 billion to charity this year, a 25 percent increase from 2005. Charitable giving is rebounding nicely in San Diego, where it is growing at a faster pace than the regional and national economies.

However, in this uncertain financial environment, some donors are holding back; often because they feel unprepared for retirement. However strong their charitable impulse, they do not know how much they can afford to give because they are not sure how much capital they will need to secure their own future living expenses.

Financial advisors are providing ways to assuage these fears. Sophisticated planning tools that model a wide range of potential market environments can help prospective donors determine their core capital: the amount they will need to maintain their lifestyle. Baby boomers who have wealth beyond this core requirement can begin to give with greater confidence.

Other individuals are holding back for different reasons. Some feel their gifts will not have much impact, but in fact they may be underestimating how far their gifts can go. By making full use of the charitable deduction allowed by the IRS and, where available, employers’ matching gift programs, donors can multiply the impact of their gifts. By donating appreciated stock rather than cash, they can often increase the size of their contributions.

Yet another impediment to giving is the assumption that a dollar given to charity is a dollar that cannot be spent in retirement or left to succeeding generations. This assumption is not necessarily correct. With charitable giving strategies such as gift annuities, remainder trusts and lead trusts, donors can accomplish several goals at once. By taking advantage of favorable tax policies, these strategies can benefit donors, their families and the charities they wish to support. Currently there is a remarkable opportunity to plan with charitable lead annuity trusts, or CLATs.

Despite the recent economic turmoil, charitable gifts still have a solid place in wealth transfer planning. By working with a trusted advisor, baby boomers can take stock of their goals and shape a retirement strategy that may include a prominent role for charitable giving.

You can find additional Bernstein research on this topic and more at bernstein.com.