Preserving Your Family Legacy with Strategic Philanthropy

Families are evolving in how they view their philanthropic efforts and goals, as they seek to have more of an impact on the causes that are important to them.

Long seen as the exclusive purview of the ultra-high net worth client, strategic philanthropy is now a mainstream concept. For those families and individuals involved in philanthropy, even at modest asset levels, conversations between donors and recipients are changing dramatically. Families are evolving in how they view their philanthropic efforts and goals, as they seek to have more of an impact on the causes that are important to them. Establishing a strategic, flexible and functional approach to philanthropy is also essential for long-term family unity and legacy preservation. An experienced wealth manager can assist you in developing a plan that puts your philanthropic vision into action and helps your family achieve its goals.

The Evolution of Philanthropy

Philanthropy has grown in both size and scope since the 1970s. Total philanthropic giving in the United States stands at more than $470 billion annually (as of 2020), compared to $125 billion 40 years ago. Interestingly, individual givers represent the largest set of donations, with nearly 70% of the total giving.1

In the past, donors typically spread their wealth around by giving smaller grants to multiple organizations. These days, donors have become more skilled and tend to give larger grants to a few select organizations. Donors now take a greater interest and role in the organizations they give to and are more interested in focusing on those that have the greatest impact within their specific community, or that address the issues that they care about the most. In many cases, the impact they are looking for may involve finding new ways of funding and structuring philanthropic solutions.

Instead of simply writing a check, donors are asking, “What am I funding and why?” Strategic philanthropists think of their donations as investments in a project and seek greater control over how they are used. Rather than trusting the operational capacity of public charities, many families opt to establish private foundations.

They seek to use their capital to drive change, both in grant-making (the minimum requirement is 5% of the foundation’s annual market value) and in the investment policy of the foundation’s assets.

When strategic philanthropists do work with public charities, they ask more incisive questions than donors have in the past. They want to know how the public charity operates, what works well, what needs improvement, and how to measure both success and risk. They are not afraid to fund overhead costs for the right model and goal.

A Way to Unite a Family

Strategic philanthropy presents families the opportunity to create a unifying legacy. Studies show that 70% to 75% of wealthy families lose their wealth within three generations of building it — and that 90% of those losses can be attributed to poor communication within the family rather than poor financial planning.2

Allowing children and grandchildren to contribute to the family’s philanthropic vision can help to foster the trust and communication skills necessary to avoid such an outcome. It is a great way to ensure that the younger generations feel connected to the family’s values and makes it more likely that they will preserve and maintain the family’s legacy in the future. Younger family members should be involved as early as possible, as philanthropic planning can serve to educate them about the importance of entrepreneurship and how critical it is to grow and replenish the family’s wealth.

It’s never a good idea for older family members to establish philanthropic goals on their own or to choose goals that are important solely to them. When it comes time for the next generation to take control, they may not be interested in maintaining what the older generation started. Family unity dissolves because the next generation has no stake in the core philanthropic values or in the methods of managing the foundation or philanthropic efforts. The inevitable result of such limited thinking is the abandonment of the foundation, neglect of the management of assets and returns, and, potentially, permanent discord between family members.

The Role of Your Wealth Manager

A wealth manager can work with you to shape your approach to philanthropy and develop a plan for strategic giving that also preserves your family’s wealth. Wealth managers working with philanthropic families do more than just determine the most appropriate vehicle for family giving. They can become a long-term partner, working with your family to discover appropriate philanthropic opportunities and to implement your plan.

Part of this process involves educating your family on the state of philanthropy today, why it is significant, and how they can help. A wealth manager guides the entire family and helps build the vision from the ground up. He or she may offer potential paths to take, recommend best practices and suggest other individuals in the community with whom you can collaborate. A wealth manager serves to direct the practical application of your values. For many families, strategic philanthropy becomes a way to feel good about their wealth, to become more comfortable with it and to better understand it.

To accomplish this, a wealth manager must understand your family’s values well enough to make sound recommendations for networking opportunities in your community. He or she should be able to introduce you to non-profit and foundation executives or social entrepreneurs and point you toward helpful academic resources.

Some important questions your wealth manager may ask to start this conversation include:

– What issues in your community would you spend money on to change and improve?

– What topic or problem most angers you?

– Where do you find the most joy in life?

– What innovations or threats do you see impacting the quality of life of your grandchildren and great-grandchildren?

Building a personal relationship with a wealth manager who you can trust and rely on sets your family up for long-term success in reaching your philanthropic goals.

Profile: Marie and Robert

Marie and Robert Morgan, a married couple in their 60s, sold their company to a private equity firm. Despite their success in the business, the Morgans never thought of themselves as wealthy. Overwhelmed by the $75 million windfall they earned from the sale, the Morgans worried that their newfound wealth might have a negative impact on their family’s values.

The Morgans sought the advice of their wealth manager, Craig, who was also working with their lawyers and CPAs to craft a long-term financial plan. Craig suggested they consider establishing a family foundation. He believed that this would allow them to reinforce their values through philanthropy during their lifetime and ensure that their children and grandchildren would be able to continue this work after they’re gone.

Education is very important to the family. Two of Marie and Robert’s children are teachers. Therefore, education became a cornerstone for The Morgan Family Foundation, with a focus on how to impact local and state education reform and how to help each child and grandchild’s community and school.

First, they set aside $15 million to start the foundation. Then, they placed $2 million in a donor advised fund (DAF) to support a local camp that their children enjoyed attending when they were younger. They also started a $3 million scholarship fund. Because of his deep, personal involvement in his clients’ community, Craig was able to facilitate many of these actions and help the Morgans build relationships with like-minded members of the community who are now integral supporters of their foundation.

Luckily, the Morgans understood the benefit of involving their children before making any final decisions. Even in a family that seems to share the same values, new wealth can strain relationships. When the entire family sat down to discuss their strategic philanthropic vision, they chose to increase the foundation asset level to $35 million. Because the decision was made before the money could change their lifestyle or influence their values, no one in the family felt like they were missing out by allocating these funds to philanthropic endeavors.

The foundation has been successful for the past 10 years, and as the next generation comes of age, the family will begin to include them in the process. This type of ongoing communication and education about wealth prevents younger generations from being overwhelmed by it; involving them in the decision-making ensures the continued legacy of the family’s philanthropic values.

Building a True Partnership

Opening a philanthropic conversation with your wealth manager will reveal values, goals and issues that you wouldn’t typically discuss when speaking with an investment advisor or private banker. When determining the best ways to help preserve wealth and strengthen familial relationships, the philanthropic conversation takes this assessment to a deeper level.

It is also important to select a wealth manager who can go beyond the typical rhetoric of traditional philanthropic discussion in banking and investments, which focuses solely on identifying and setting up the appropriate charitable vehicles (e.g., DAF versus private foundation, which charitable trust type is best in certain situations, etc.). A wealth manager who can bring real knowledge of this sector and execute on it is best equipped to serve your family’s long-term, philanthropic vision.

At BNY Mellon Wealth Management, we are already taking this approach to strategic philanthropy. We are building relationships with our clients and their families and working closely with them as they craft their philanthropic vision. By thinking beyond the numbers and risk analysis, we are tapping into the driving force behind philanthropy— to make a positive, lasting impact on the legacies of our families and communities.

  • 1Data as of 2020, per Giving USA.

    2Williams, Roy and Preisser, Vic. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Robert Reed Publishers, 2010.

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