Family Philanthropy

November 22, 2022

Preparing the Next Generation for Success

By Justin Miller
For parents and grandparents looking to transfer values to future generations and create a lasting legacy, family philanthropy can’t be beat. The benefits of philanthropy are extraordinary and well-documented. Giving can boost happiness and satisfaction, increase life expectancy, reduce stress and ease depression (Dunn EW, Aknin LB, Norton MI, “Spending Money on Others Promotes Happiness,” Science, Vol. 319, Issue 5870, March 21, 2008; Harbaugh W, Mayr U, Burghart D, “Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations,” Science, Vol. 316, Issue 5831, June 15, 2007).

However, family philanthropy isn’t just about giving to others; it’s about giving together. Collective, communal and cooperative giving helps to create stronger family bonds and solidify family values. By helping clients make gifting decisions as a family, we can empower clients’ younger family members to develop a variety of skills—including communication, negotiation, shared decision-making, leadership, accountability, investing, financial literacy and responsibility to help others. 

As an added benefit, family philanthropy teaches the same skills that are necessary to prepare the younger generation to manage and expand the family’s wealth in the future.

Establishing a Family Philanthropy Program
Family philanthropy is not limited to the wealthiest families with private foundations. Donor-advised funds serve as a great cost-efficient resource for parents or grandparents to begin family philanthropy programs for younger members of their families. Because these funds typically offer user-friendly online platforms without the expense and administrative burdens of a private foundation, they are often the ideal charitable vehicle to help the younger generation become a part of a family philanthropy program.

Before engaging in family philanthropy, it’s important for the elder generation to first facilitate a family meeting, which should include a meaningful discussion about philanthropy—ideally, one where each member of the family proactively participates. Research has shown that conversations between parents and children about charity have an even greater positive impact on children than parents serving as silent role models through their own philanthropic activity (“Women Give 2013: New Research on Charitable Giving by Girls and Boys,” Lilly School of Philanthropy, Indiana University, Women’s Philanthropy Institute, Dec. 2013). 

With the help of a neutral professional facilitator, this family meeting also could benefit from effective communication exercises to help the family members discover their common values and vision.

Children can become part of a family philanthropy program as young as 5 years old and can begin to play a deeper role with respect to the actual administration and investments of the family philanthropy program before they’re teenagers. Clients may wish to set standards for performance to accompany each grant given as part of the family philanthropy program, and selected charities that attain those standards might be allocated more funds in future years. 

The children can propose and advocate a grant request, which could include site visits to the proposed grantee and interviews. A family philanthropy program could even require each participant to make some type of personal investment in any organization that will be receiving funds—such as actively volunteering with the organization or making a small personal gift along with the larger donation from the family philanthropy program.

As part of the family philanthropy program, each family member could be given a relatively small amount to donate to charity independently. In addition, a separate larger amount may be set aside for all family members (for example, siblings or cousins) to give away as a collective unit so they will be required to discuss and agree together on the organization receiving the donation. 

Many organizations encourage children’s participation in philanthropic activities and welcome them to visit their facilities and even volunteer, which is a terrific way to unite family members as they work together toward a common goal. For more substantial donations, particularly ones in which the family name will be recognized, involving the whole family can help instill a sense of pride in the family legacy.

Consider the approach of a philanthropic couple who established a donor-advised fund with $250,000 of appreciated stock, which resulted in an immediate $250,000 charitable income tax deduction and zero capital gains tax. The couple has three children—ages 11, 13 and 18—and the parents are nurturing a philanthropic spirit in their children by incorporating family philanthropy to help the kids explore and develop their own charitable interests. 

Using the donor-advised fund, the parents provide $1,000 annually to each of their children to give away on their own and an additional $10,000 for their children to give away together. Last year, after visiting and volunteering at multiple charitable organizations, the 11-year-old and 13-year-old gave their $1,000 to a local animal shelter and the 17-year-old gave his $1,000 to a micro-lending organization. And after conversations guided by the parents to accommodate their children’s different ages and communication styles, the children together decided to give their collective $10,000 to a cancer research organization, in the name of their grandfather who had recently passed away from cancer. 

As the children get older, the parents could always expand the family philanthropy program by increasing the annual donation amounts and making additional contributions to the family’s donor-advised fund, which would support positive family dynamics and result in additional tax savings.

Ultimately, the right approach is different for each family. However, what family philanthropy programs have in common is that they help younger family members learn independence (how to be self-sufficient and self-supporting) and interdependence (how to be emotionally, economically, ecologically and morally responsible to other family members). With such an overwhelmingly positive impact, family philanthropy should be a top consideration for every family beginning a journey toward healthy governance.

Getting Started
When it comes to that first family meeting, a good place for clients to start is to ask each member of the family to address the following questions:
  • Who do we want to be as a family?
  • What are we trying to accomplish? 
  • When should we start?
  • Where do we want to end up?
  • Why do we care?
  • How are we going to get there?
To maintain a strong family philanthropy program over time, the program should have the following components:
  1. Choose philanthropic projects based on shared family values.
  2. Encourage proactive participation from family members and shared decision-making.
  3. Define goals, measure and review performance, and evaluate success.
  4. Continually learn from experience to improve in the future.

Justin Miller, J.D., CFP, is a partner and national director of wealth planning with Evercore Wealth Management and a member of the CalCPA Estate Planning Committee. 

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