Not all of us can be as generous as billionaire Robert F. Smith, whose commencement speech concluded announcing that his family will pay off the student debt of the entire graduating class at Morehouse College, nearly $40 million. Yet, we can all make a difference in our own community, at whatever level we can afford.
There is no doubt that the secret to living is giving.
As a family, philanthropy can be a way to bond multiple generations together in common values. It is a way to pass down generosity and collective responsibility to children and grandchildren. It’s also a way for the elders to remain connected and involved as grandchildren become adults and form their own values.
For parents, setting up a structure around family giving can be a great way to provide children with the tools they need to become young adults.
If the family is fortunate and has significant wealth, parents may be concerned about their children’s potential lack of initiative or sense of entitlement. Teaching children about giving and including them in the research and decision-making process can be a way to instill confidence and a sense of greater responsibility.
COMMUNICATION IS KEY WHEN GETTING STARTED
The first step is to gather your family together and discuss your individual and shared values and beliefs.
Once you identify favorite interests and charitable causes, the next step is to develop a mission statement with everyone involved. Create a mission statement that reflects the values you live every day. Have each family member gather information on charities they care about that meet the mission of the whole family, and present their case for a donation.
This is a great way to teach younger generations about negotiating, making decisions, leadership, accountability, and to build a healthy relationship with money.
There are multiple ways to implement a family giving plan.
On the trust side, one can set up a charitable remainder trust, which provides an immediate income tax deduction to the donor, offers a stream of income in the form of annual distributions to that donor (or other individual), and passes the remainder of the assets to one or more charities.
A charitable lead trust also provides the donor/owner with an immediate income tax benefit. In contrast to the CRT, the CLT benefits one or more charities with cash flow for a specific period of time, after which the remaining assets are passed to the donor’s family.
PRIVATE FAMILY FOUNDATIONS ARE AN OPTION
For the wealthy family, a private foundation is an option if creating a legacy in perpetuity is your goal. Foundations offer immediate income tax benefits, and the donor and descendants maintain control over who receives grants. There are administrative complexities and high costs associated with a private foundation.
DONOR-ADVISED FUNDS GAIN POPULARITY
Donor-advised funds have been around since the 1930s and are gaining in popularity. They are also a way for donors to receive tax benefits on donations in the current year while delaying the allocation of those funds to charities until a time in the future.
The donation is made to the DAF, which is offered by a financial institution or a community foundation. The funds are administered and distributed by that institution, although the donor can direct which charities the funds benefit.
You don’t need to be highly wealthy to be philanthropic through a DAF, as some providers have minimum account sizes as low as $5,000.
A simplified version of a family giving plan could include a commitment by each family member to make modest donations to a chosen charity. If the children receive an allowance, having them donate a percentage of it to charity before spending or saving the rest, puts them on the path to philanthropy.
Whether you decide to formalize a family giving plan or keep your philanthropy more tactical, remember that children who become generous and charitable adults are directly influenced by the behavior of their parents and grandparents. Generosity has so many benefits, from better health and well-being to delayed mortality. It’s good for the whole family.