Family philanthropy: Getting Started

Engaging the next generation, even the youngest among them, in decision-making related to giving, administrative responsibilities, and management decisions around investing, truly pays off. This engagement gives them the experience and confidence they will need to be successful stewards of wealth, not just beneficiaries.

Involving the next generation

The practice of involving the next generation provides:

• A means and structure to assist the next generation with building knowledge and experience in philanthropy
• An opportunity to gain leadership experience
• A chance to engage in governance of the family enterprise, and practice shared decision-making
• An opportunity to enhance the connection and relationships between the generations of the family and enjoy time with one another while making a difference

Involving the next generation begins by cultivating a culture of support for philanthropy within the family. Allowing all family members involved to participate in their own philanthropic goals, along with yours, gives them a chance to support what is important to them. It also allows all family members to share and express one another’s values, which can help lead to an engaged and ongoing relationship within the family. It is, in part, this practice of communication that ultimately assists with the successful transfer of wealth through multiple generations of the family.

Allowing for family members’ voices

When involving your family or other individuals in your philanthropic giving, it is important to make sure you have a system in place that will allow for all voices to be heard. In short, if these individuals don’t see themselves represented in the philanthropic process, they may not feel integral to the practice. Holding regular meetings to discuss the family’s philanthropy, with agendas and meeting norms, is a helpful best practice.

Developing your purpose: The philanthropic mission statement

A philanthropic mission statement grounded in your shared values can become a guidepost for future decisions. Questions about whether to support a certain non-profit or engage with a new philanthropic endeavor can be more easily answered when considered through the lens of your philanthropic mission statement. Moreover, turning to your mission statement to explain what you do not support is of equal importance.

Before drafting a philanthropic mission statement, first explore your philanthropic values. Then, decide where you want to focus your giving. If you cast too wide a net, it will become hard to make decisions, hard to say “no” when asked, and harder to make a real impact. If your focus is too narrow, you risk alienating family members who aren’t as passionate about that specific area of giving.

While there are many ways to draft a philanthropic mission statement, we do not recommend that you do it alone. At the CFL, we begin this process with the shared values exercise described earlier. Then, a CFL advisor facilitates a family meeting and works with the family to develop a philanthropic mission statement based on these values. Families consistently find it fun and rewarding work. Time and again, we see the reward of starting with values.

Consider a donor intent statement

A donor intent statement might be important if you have very strong feelings about how you want this money to be used, or how you don’t want it to be used by future generations.

In a donor intent statement, you can describe your giving/charitable principles, interests, and goals so that future givers may understand your vision. You may wish to include a statement regarding where you would like the giving to be focused, and you can also make clear what activities/organizations should not be supported and the reasons why.

Keep in mind, that if you want your philanthropic legacy to continue into perpetuity, it is critical to build in flexibility for future generations. A donor intent statement that is too prescriptive can limit the effectiveness of your giving as the world and your family evolve.

One strategy we have seen that effectively codifies donor intent while striking a balance between the generations, is the sharing of important and pivotal personal and family stories, which shape and give context to your vision.

At the CFL, we believe an effective donor intent statement allows for a balance between current and future generations.

Next steps: The technical

Since the early 2000s, there have been a number of studies looking at donor satisfaction, and the findings may shock you. Many donors who gave significant amounts to their charities of choice came away dissatisfied with their gifts. This failure for a donor to have a successful, positive feeling about his philanthropy left many business-minded people looking for answers. Some of the leading philanthropic consultants found that a key reason was unclear expectations and/or unrealistic goals.

The field of philanthropy had been driven by well-meaning intentions and high emotional intelligence, but not always a disciplined approach to metrics and results. The last 20 years have seen an increased focus on defining goals with precision and setting metrics that can be measured.

The clearer philanthropists are about their goals and the more effective they are at communicating those goals with the organizations they support, the more likely they are to feel their resources are achieving impact. Additionally, when you work with this level of clarity it becomes easy to say no to requests outside your scope.

Though this requires some work, it ends up saving time and money, and results in much higher satisfaction for the donor and the recipients of the generosity.

Putting your philanthropic goals into action

After you have identified and clarified your values and vision, the next step focuses on how to achieve your goals. These preferences will help shape your overall strategy.

In order to be most effective with your family philanthropy, you need to understand how and when you want to give:

• Do you want to put a mechanism in place for ongoing giving, or do you want your giving to be done on a case-by-case basis?
• Do you want to handle all the administrative tasks involved, or would you prefer to put this into the hands of others?
• Do you want to give during your life, or would you like to leave a philanthropic legacy that continues after you pass?

Your answers to these questions will help to determine the most appropriate approach.

When it comes to philanthropic planning strategies, there are many options to choose from. There are positive characteristics and potential drawbacks to each of the following methods and entities:

• Direct Giving: Simply put, direct giving involves writing a check or giving funds directly to the charity of your choice. This allows for flexibility because there is significant opportunity and no formal structure to follow. However, this approach does not allow the opportunity for planned ongoing giving, nor will this method continue past your lifetime.
• Donor Advised Funds: A Donor Advised Fund (DAF) is an individual account set up with a public charity, such as a community foundation. Contributed assets are managed and administered within the DAF. Donors recommend eligible charitable recipients, but final granting authority and investment control reside with the DAF’s directors. A DAF has no minimum annual giving amount required.
• Private Foundation: A private foundation is a not-for-profit legal entity established by a person, family, or business that is organized exclusively for charitable, educational, religious, scientific and literary purposes. Donors may contribute a wide range of assets and retain full control over those assets, including control over investment decisions and grant-making.
  
  Foundations tend to be multi-generational and last in perpetuity. They are wonderful vehicles for family involvement and maintaining control. Keep in mind that foundations are strictly regulated and are required to file annual tax returns and make annual minimum distributions in order to avoid tax penalties.