Giving is a family affair - Butler Financial, LTD
Important Tax FAQs

Resources

Giving is a family affair

How to inspire charitable values for generations to come.

As wealth grows, so does the desire to increase charitable contributions – and leave a legacy of generosity. Involving your family in such a noble effort can bring even greater joy. It’s a heartwarming feeling when you pass down your value of helping others, to live on long after you’re gone.

Before money actually reaches your heirs’ hands, you’ll want to prepare them for this great responsibility and invite them to actively participate in your giving. There are many ways to do this, casually and formally, but doing it alongside them will set the tone for your expectations later on – and inspire them to perpetuate your benevolence.

Values, more than money

It’s easy to get caught up in the details of how best to earmark money for your family to facilitate charitable contributions. But before we consider the how, think about the why. Reflect on why it’s important to involve your family in charitable affairs (which may help guide your strategy for execution).

Share with your family why charitable giving is a value you want to pass on to them. They should understand your motivations for doing it and what programs you’re passionate about. Educating them on why charitable contributions are important to you will inspire them to make the same impact. If you share stories of how you were able to affect some of the causes close to your heart, they’ll also be able to be better stewards for your money (and theirs), later on.

Everyone’s talking about this Great Wealth Transfer, in which an estimated $84 trillion is set to transfer from the hands of baby boomers to their heirs. While $72 trillion is projected to go to the next generation, $12 trillion is expected to be donated to charities over the next 20 years. Prepare your family for the plans you’ve put in place by starting conversations about your expectations.

You can create a family mission statement to guide your giving but allow your children and grandchildren to start building their own philosophy as well. After all, one of the reasons they’ll take interest in participating is that they can decide where some of the funds go. They may see different causes that will benefit from the donations and making a real difference for these charities will spark continued generosity.

Vehicles for donating

Knowing about the charitable vehicles available will help facilitate your family’s active participation in giving. Each vehicle offers its own benefits, so speak to your advisor about which option is best for your situation.

  • Private foundation: One of the biggest draws of private foundations is their ability to offer customized and high-touch charitable giving options, including scholarships and competitive grants. You can establish a private foundation and invite your family members to become board members or to vote on where charitable funds will be distributed. Private family foundations can be funded on an ongoing basis through cash, publicly traded securities, private stock, real estate and other family-controlled assets (distributing at least 5% of assets to charities or qualifying individuals each year). Depending on the level of involvement your family members want, you can elect one of them to manage the foundation or hire a professional operating partner to oversee administrative tasks, as they can become complex and burdensome.
  • Donor advised fund (DAF): Another option to involve family members (perhaps with less of an administrative burden than that of private foundations) is a DAF. These are a popular choice because they offer great tax benefits and desirable flexibility. Unlike private foundations, DAFs aren’t required to meet annual distributions requirements, and you can take the immediate tax deduction when you contribute to the fund. In fact, the deduction for contributing cash can be up to 60% of adjusted gross income and 30% for long-term publicly traded securities. (That compares to 20% and 20% respectively for a foundation.) You can use your family name or moniker to name the fund, and even remain an anonymous donor if you wish.

While involving your family in the giving decisions for these family charitable endeavors is a good start, you may consider starting a separate foundation or DAF for family members if there’s interest down the line for increased involvement – doing so may mean leaving a more profound family legacy. This will give your children or grandchildren full ownership over choosing the causes to support, and a sense of pride that they were able to make a difference.

Leaving a family legacy

Regardless of the approach you take to family giving, the end goal is to leave a family legacy of generosity. This starts with a conversation and living and breathing the values of caring and giving on a regular basis. In fact, according to More than Money 360, lack of communication and trust are at the top of the list of risks to family’s wealth (along with deficiency in legacy planning).

Communication about financial wealth should not just focus on money. Instead, incorporating core values, legacy, philanthropy and defining life experiences will refocus the conversation on the family unit – what matters most. Coupled with active participation in giving, this practice helps foster a spirit of gratitude over entitlement.

As your family members age, they may find new causes they care about and have the desire to support. If you lay the groundwork for charitable giving, they will carry it with them for the rest of their lives – and pass it down to the next generation. Talk about making a difference.

Next steps

To involve your family in your charitable giving:

  • Invite them to have a say in guiding your donations.
  • Keep ongoing conversation focused on the impact your wealth can make.
  • Consider opening a charitable account for them to manage.

Raymond James does not provide tax or legal advice. Please discuss these matters with the appropriate professional.

Other posts you might like
ButlerFinancial
March highlighted by markets rising to record highs

Markets & Investing April 01, 2024 Market rally driven by a broadening of the market and optimism that...

read more
ButlerFinancial
No fooling – a silver lining for investors

Markets & Investing April 01, 2024 Doug Drabik discusses fixed income market conditions and offers...

read more
ButlerFinancial
The next level of play in the financial markets

Markets & Investing April 01, 2024 Raymond James CIO Larry Adam reminds investors they need to be well...

read more