Human beings are driven not only by self-preservation, but also by altruism. Compassion is deeply rooted in human nature.i Giving to others can be one of life’s great joys. In fact, our brains are chemically hard-wired to reward us for acts of giving.ii Research shows that the practice of giving is positively related to happiness.iii
This neuro-psychological research combined with two decades of using our non-financial 25 best practices, has led us to discover what many of you already know: A perspective of gratitude and a spirit of generosity play important roles in wealth creation and sustainability over multiple generations. These concepts are so significant to the longevity of a family enterprise that Truist Wealth’s Center for Family Legacy (CFL) lists three philanthropic activities as part of our 25 best practices for multi-generational families.
The practice of philanthropy is one of the most effective ways to define your values and create a legacy. The additional benefit of building empathy, which includes understanding the needs of others, appreciating how different our lives can be, and cultivating gratitude for the ways we are fortunate, may also be a key to wealth creation. As Dr. Jamil Zaki highlights in his book, “The War for Kindness,” the most effective and successful business leaders actually have the highest level of empathy.iv Family philanthropy may be the most ideal place to practice empathy and cultivate the future leaders of your family.
For families of wealth, incorporating the practice of philanthropy within your family structure brings countless benefits, including two key positive impacts:
- It can help to give greater meaning and purpose to your financial wealth
- It can lead to the successful transfer of wealth across multiple generations.
In addition to the positive effect that the practice of philanthropy can have on family relationships, there continues to be a great need world-wide for this practice. Consider the following statistics:
- In the United States, 10.5% of the population—34 million people—live in poverty as of 2019. For an individual in the U.S., the poverty line is $12,880 a year, or about $35.28 per day.v
- As of 2020, 689 million people live in extreme poverty, surviving on less than $1.90 a day. vi
- COVID-19 drove an additional 97 million people into extreme poverty in 2020.vii
Philanthropy is a win-win, for your family and for your community. But this practice involves much more than just writing a check in times of need. In order to receive its benefits, philanthropy must be done authentically and with sincere intention to impact the lives of others.
Understanding the needs of others against your own privilege can be unsettling. Finding a unique place where you and your family can have impact requires strength, courage and a capacity to see where your gifts match the needs of the world. Effective family philanthropy involves deeply understanding your own values and a clear-eyed view of the needs in your community or across the globe.
As with anything truly important, getting started with family philanthropy can be a daunting task. The following information is designed as a blueprint to help you begin this important work.
Getting started: The practical
Let’s take a look at some practices and strategies you can use as you develop and implement your philanthropic goals.
Identifying values and goals; your motivation for giving
In order for your philanthropic efforts to be as efficient and effective as possible, it is important to have a clear vision in place. That starts with identifying, understanding and processing your goals. And to do that, you must first identify and appreciate your values.
Simply put, the question is: What motivates you to give?
Families have different goals when it comes to philanthropy, and the motivations behind giving are myriad and varied. In fact, you may have multiple reasons for giving. Some common drivers include:
- Religious and spiritual beliefs that spark a desire to give
- A feeling of responsibility to give back to your community
- A desire to promote a family or individual legacy
- An appeal for action in a time of crisis or natural disaster
- Tax-related reasons
Your personal and shared values guide your decision-making in all aspects of your life, not just around your giving. For a family interested in giving together, it is vital to explore the many values you share, and how these values might manifest in your charitable giving.
Taking some time to dig into your motivating values will help you identify priorities around giving. It can be beneficial to seek help with this work. At the CFL, we start with a robust values survey based on the research of values theorists Benjamin Hall and Brian Tonna. Each family member takes a proprietary online values assessment that produces a Personal Values Report for each individual and a Shared Values Report for the whole family. Understanding your shared values is foundational to moving forward with your philanthropic goals.
Determining who to include in your philanthropy
It is also important to define who you want to include in executing your philanthropic goals. You may decide to include your spouse, your children, your immediate family and/or your in-laws, your extended family, professionals you work with, and friends. For the purposes of this paper, we assume that you will want to include family members.
Keep in mind that charitable trusts require formality. They necessitate the engagement and ongoing involvement of trustees, file their own tax returns, and must meet fiduciary standards and laws applicable to irrevocable trusts.
Keep in mind that many charitable strategies require an annual tax return to be filed, and in some cases, certain annual registration and certification criteria will need to be met. Some entities also require the ongoing engagement of trustees who serve in a particular fiduciary role. It may be helpful to note that there are many third-party agents, including attorneys, CPAs, and financial institutions (including Truist) who are uniquely qualified in and experienced with this work.
Regardless of whom you choose to include in your giving and among your advisors, you need to be sure to include people you trust and who are qualified to manage and run your philanthropic entity. You will need an individual(s) who are willing and able to manage the resources earmarked for giving and make important decisions around the giving and management of the enterprise.
Other practical concerns
Ultimately, you will need to consider what and how much of your resources you wish to dedicate to your philanthropic goals. This will help to identify the resources and investments to be used, along with any tax implications you will need to take into consideration.
You will be best suited to make these decisions by engaging your advisors to help you. These may include your investment advisors, your attorney, a CPA, and other trusted advisors.
It can also be very advantageous to develop a clear system for how decision-making will be made, and to employ the practice of allowing all family members involved to be heard. The CFL team has deep resources to offer as you plan for this future.
Family philanthropy can be extremely rewarding in bringing family members together and deepening relationships within the family through a common cause. It is also, of course, extremely beneficial to the causes you care about.
Before you begin a philanthropic practice, it is important to have a thoughtful plan in place, and include your family members in key decisions. Truist Wealth’s Center for Family Legacy advisors are here to help you and your family understand your personal and shared values, codify your goals, and work together to develop a plan. Together, we’ll create a plan that, over time, will greatly assist in the successful transition of your family’s wealth across multiple generations and leave a philanthropic legacy of which the family will be truly proud.