It’s the time of year when gift giving is on the minds of many people – including your clients. And they might not be confining their gifts to families and friends, either, as they consider making donations to charitable organizations. But as their financial advisor, you can do them a big service – by helping them make sure that their gifts are doing the maximum amount of good.
Specifically, you can advise your clients to do some homework to ensure they are giving to a reputable charity. That means they’ll need to ask some questions: How does a group measure its effectiveness? Is it devoting as many of its contributions as possible to the actual work of the organization, or is it spending too much money on administrative costs? Many experts on charitable giving say that a worthwhile charity should spend at least 75 percent of its income on programs.
Your clients may be able to find this type of information on a charitable group’s annual report and its website, but they can also get valuable information from impartial, third-party sources, including the following:
IRS Tax Exempt Organization Search – This site helps users find information about a tax-exempt organization’s federal tax status and filings. Once on this site, your clients can find organizations eligible to receive tax-deductible charitable contributions, organizations whose tax-exempt status has been revoked, and data provided by tax-exempt organizations to the IRS.
Charity Navigator – This site rates charities based on their financial health, accountability, and transparency to help donors make informed decisions about their contributions. Charity Navigator has evaluated over 9,000 tax-exempt charities. If your clients’ chosen organization is not included, they may want to find out why.
GuideStar – GuideStar provides a variety of information on charitable organizations, including their mission statements, programs and financial data, such as gross receipts and assets. Users can also gain access to an organization’s Form 990, which discloses where and how an organization’s donations are spent, including the earnings of top officers. All nonprofits are required to have up-to-date 990’s available to the public. If an organization does not have this information readily available, or is not forthcoming if your clients request it from them, clients may want to reconsider their donations.
Charity Watch – This organization rates charities on specific criteria. Advice, articles, and basic information are open to the public, but your clients can also sign up for members-only access, which gives further insight into specific charities. Charity Watch also exposes instances of abuse.
BBB Wise Giving Alliance – This site helps donors by evaluating organizations based on 20 specific standards, such as governance and oversight, effectiveness, finances, solicitations, and informational materials, for which charities earn a point each. BBB Wise Giving Alliance generally recommends that if an organization does not score a 20 out of 20, individuals’ donations may be better made elsewhere.
In addition to encouraging your clients to visit these sites, you may also want to offer the following tips for making charitable donations:
- Be careful with giving a credit card number over the phone or to an organization that only wants cash donations. Legitimate organizations typically have options for donating securely.
- Understand that charities have administrative costs, as mentioned above. If an organization claims that 100 percent of your donation will go straight to victims or resources, you may want to investigate further.
- Trust your instinct; you should feel good about making a contribution.
- Be concerned about donating via text. Make sure you know what organization is receiving your donation.
- When in doubt, consider making a non-cash donation such a food, clothing, or other goods.
Ensuring that a charitable group is reputable and being careful about making contributions are important elements of charitable giving, but they aren’t the only ones that should concern your clients – they’ll also want to be familiar with the tax aspects of these gifts. And while you certainly may want to refer them to their tax advisors for questions on this subject, you can also offer some valuable tips, a few of which can be found in the article Help clients make smart financial moves to close out 2018.
Make a point to talk to your clients soon about charitable giving. If it’s something they want to do – you may be able to help them get the greatest benefits from their generosity.
These sites are neither owned or controlled by RBC nor any affiliated company. Links are provided as a courtesy and are neither endorsed or reviewed by RBC. Your clients should consider all source of reliable information available before making any financial decision.