Clients have expectations when they meet with their advisors – sometimes realistic, other times less so. When the advice involves the client’s finances, what the client expects the advisor to accomplish may put the advisor in the realm of Merlin, the magician. Yet, there are times when a savvy advisor can help the client accomplish far more than even the client thought possible. Such is the case with the philanthropically inclined client who wants to give more, but just doesn’t believe it possible. Enter the “blended gift,” a technique about which advisors should become familiar and which may elevate the advisor to the role of magician, at least in the client’s eyes.
When clients consider their charitable giving options, they often do it in silos. How much can I write a check for now? Should I consider a gift in my estate plan? Life income gifts such as charitable remainder trusts or gift annuities in most cases don’t even enter the discussion. Yet, the synergy of combining various gift options can enable the client to make a gift with impact - a gift the client may have never thought possible. In fundraising jargon, this is called the “blended gift.” Let’s consider an example.
Judy was the first in her family to attend college, having graduated with honors in 1971. She went on to have a successful career in marketing and has a current net worth in the low seven figures. Judy met with her advisor and expressed a desire to make a gift to her alma mater with lasting impact, and for which she could honor her parents whose emphasis on the importance of higher education was largely responsible for Judy attending college. Judy’s dream, but which she believed impossible, was to endow a professorship named for her parents. The endowment level for a professorship at her alma mater is $1.5 million, an amount Judy thought to be beyond her prudent financial reach. In consultation with alma mater’s Gift Planning office, Judy’s advisor structured this blended gift:
- Judy would pledge $250,000 during her lifetime to seed the endowed professorship fund;
- As part of her retirement income plan, Judy would fund a charitable remainder trust with $750,000 using low yielding appreciated securities and would name alma mater as the charitable remainder beneficiary to add to the professorship fund (Judy will receive trust distributions during her lifetime); and
- Judy will include in her estate plan a clause to pay from her estate an amount such that, counting Judy’s outright gift of $250,000 and the remainder interest of her charitable remainder trust passing to her alma mater, alma mater will receive a total of $1.5 million, with any shortfall coming from Judy’s estate.
Blended gifts enable donors to give more than they thought they could. The blended gift can be used at many charitable organizations for donors to make gifts that will have impact for future generations. The “blending” depends on the financial situation of your client, the gift options available, and your client’s objectives for the gift.
Judy, our philanthropically inclined alumna, never dreamed she could make a $1.5 million commitment for an endowed professorship. However, her advisor understood the power of how a blended gift could enable Judy to realize her dream. Was it magic? Not really, but Judy looks at her advisor as having pulled a rabbit out of a hat.