March 2007
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Passing the Torch Advisors often play a critical role in helping their clients integrate charitable giving into a comprehensive financial plan. Some advisors are taking charitable planning a step further by working with high net worth clients to cultivate their children's philanthropic spirit and ensure that the family's approach to charitable giving passes onto the next generation. There are several strategies you can share with your clients to help them pass their philanthropic values to future generations. Doing so may enable you to deepen your relationship with the entire family and build a bridge to the next generation. Teach the right values. The biggest obstacle to making philanthropy a family affair, say the experts, is that, like riding a bike or learning to swim, philanthropy must be taught. "Only by empowering our kids with the tools to do something about the problems they see will they begin to think of themselves as philanthropists," says Dr. Philip Flynn III, president and CEO of Philanthropic Focus, a Vero Beach, Florida firm that specializes in private foundation governance and legacy planning. Charles W. Collier, Harvard University's senior philanthropic advisor, says families that find a way to share philanthropy enjoy great rewards. "Family philanthropy not only has a positive impact on society, but also teaches children and grandchildren the skills and competencies necessary to lead fulfilling lives and steward their inherited wealth responsibly," says Collier, the author of Wealth in Families. Sow the seeds early. Your clients may have an easier time broaching the subject of philanthropy with their teenagers if charitable giving has already been a part of their kids’ childhood. "This can be as simple as having children divide their allowance into three jars marked spend, save, or share," says Ellen Remmer, vice president at The Philanthropic Initiative, Inc., a nonprofit consulting firm in Boston. Remmer also suggests families adopt simple giving rituals, such as donating a book to the library on each family member's birthday, or hosting an annual holiday party where guests bring coats to donate to a local shelter. Often the most powerful influences are the most routine. "When children see a parent leaving in the evenings to attend a civic board meeting, it registers that the parent is committed to a cause outside the family," says Matthew S. Bonaguidi, a principal of Gresham Partners, LLC, in Chicago. "I advise my clients, if you support a local museum, make it a point to visit with your children once a year and then discuss the benefits of supporting the museum. These concrete experiences make an early impression and provide the foundation for their philanthropy." Meet or retreat. Johnne D. Syverson, CFP®, AEP, of Syverson Strege & Company in West Des Moines, Iowa, encourages all his new clients to develop a family mission statement that addresses "mission, values, vision, and goals." "We need a basis with which to discuss philanthropy with the next generation," says Syverson. "Although parents have the best intentions to address philanthropy over a holiday dinner or at a reunion, the conversations never surface. We drive them to basketball and music lessons, then our kids head off to college, and before we know it they're married with kids of their own but we've never had an open discussion about family values and why we give." Some advisors recommend that their clients organize a family retreat to introduce philanthropy to all family members. "In a half-day to a two-day retreat, an outside moderator or wealth coach can take the family through various exercises to help the second and third generations explore in detail how the mission statement applies to the entire family," explains Syverson. Show them the money. Donor advised funds and private foundations can both be effective vehicles that your clients can use to nurture a culture of family philanthropy. Syverson suggests that families allow younger children to recommend grants from the family's donor advised fund in amounts ranging from $100 to $500. As the kids get older, they can make larger grant recommendations. "The kids can choose charities that they care about and want to support, based on knowledge that they've gained through their own research," says Syverson. "It’s essential to involve children in the process. Mom and Dad sitting down and writing checks doesn't teach anyone anything." Similarly, for those with a private foundation, Dr. Flynn suggests forming a "junior board" comprised of family members in the 12-to-21 age range. "A $12 million family foundation may allocate the junior board $25,000 to distribute for the year–a small amount of the total distribution requirement, but large enough to have weight," he notes. "Kids learn valuable skills, from how to read an annual report to how to set disbursement policies and benchmarks. Recently, when a 14-year-old suggested distributing a grant in payment schedules–$2,500 to start and the rest based on the organization’s accomplishments–I thought the kid’s father was going to fall off his chair!" Talk about IRAs with your clients. IRAs provide another great opportunity for clients to ensure that their philanthropic values are passed onto their heirs. For many wealthy families, IRA assets are generally small in comparison to their overall net worth and do not significantly affect their heirs. For that reason, Bonaguidi often suggests his clients frame their philanthropic discussions with adult children around the advantages of tax-free testamentary gifts of IRAs to charities. "We suggest clients designate the surviving spouse as the IRA’s primary beneficiary with the contingent beneficiaries listed as separate donor advised funds in the name of each child," he explains. "Rather than designating children as IRA beneficiaries and losing 60% to 80% of the IRA to federal and state income and estate taxes, designated charities may receive three-to-four times more than non-charitable beneficiaries." Bonaguidi remembers a meeting last December where his clients broached the subject of designating a portion of their IRAs to a public charity with donor advised funds in their children’s names. The children’s response was surprising: "We're grateful you are leaving us an inheritance, but we don’t need it all," they said. "Could you designate a larger portion of your IRA to the donor advised funds under our advisement?" "The parents were inspired by their children’s desire to do more," says Bonaguidi. "The older generation takes pride in seeing the younger generation emerge as leaders and give back to their community." Flynn, too, remembers the pride his client felt when his client’s daughter challenged him to do more than write his annual checks, but to use his position in the community to encourage others to give. "Philanthropy is a long-term commitment from the heart," he says. "When parents share that with their children, they give them the opportunity to discover what it is that matters to them and the skills to use their finances to make a difference."
As a trusted advisor, you are in a unique position to guide your clients and help
to build a philanthropic bridge between generations. You may enjoy deeper, more
personal relationships with your clients and their children - and that may enhance
your position as a life-long family advisor.
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