Establishing a Family Philanthropy Program

Establishing a Family Philanthropy Program

It’s easier than clients think

It’s not necessary for a family to have a private foundation to establish a family philanthropy program.  In fact, donor advised funds (DAFs) often can serve as great resources for parents or grandparents to begin family philanthropy programs for younger members of their families.  Since DAFs typically offer user-friendly online platforms without the expense and administrative burdens of a private foundation, they are often the ideal charitable vehicle to help the younger generation become a part of a family philanthropy program.  Moreover, it’s not necessary to fund a family philanthropy program with a substantial amount of money.  Studies have shown that individuals receive many of the same benefits from charitable giving regardless of the amount of money that they actually give.[1]

Before engaging in family philanthropy, it’s important for the elder generation to first facilitate a family meeting, which should include a meaningful discussion about philanthropy with the entire family—ideally, one where each member of the family proactively participates.  Research has shown that: (1) conversations between parents and children about charity have a greater positive impact on children than parents simply serving as a silent role model through their own philanthropic activity; and (2) talking about charity is equally effective regardless of a parent’s income level or a child’s gender, race and age.[2]  With the additional help of a neutral professional facilitator, this family meeting also could benefit from the inclusion of effective communication exercises as well as the use of tools to help the family members discover their common values and vision.

To maintain a strong family philanthropy program over time, the program should have the following four components:

1.     Philanthropic projects should be chosen based on shared family values.

2.     Family members should proactively participate in shared decision making.

3.     Results should be reviewed and successes should be measured and evaluated.

4.     The family should continually learn from experience in order to improve in the future.

Children can become part of a family philanthropy program as young as five years old and can begin to play a deeper role with respect to the actual administration and investments of the family philanthropy program before they’re teenagers.  The family members could set standards for performance to accompany each grant given as part of the family philanthropy program, and selected charities that attain those standards might be allocated more funds in future years.  Each child is capable of proposing and advocating a grant request, which could include site visits to the proposed grantee or even interviews.  A family philanthropy program could even require each participant to make some type of personal investment in any organization that will be receiving funds, such as actively volunteering with the organization or making a small personal gift along with the larger donation from the family philanthropy program. 

As part of the family philanthropy program, each younger family member might be given a relatively small amount to donate to charity on their own, and then a separate larger amount may be set aside for all of the younger family members (for example, siblings or cousins) to give away as a collective unit, in which case they will be required to discuss and agree together on the organization receiving the donation.  Many organizations encourage children’s participation in philanthropic activities and would welcome the younger members to visit their facilities and even volunteer, which is often a terrific way to unite family members as they work together toward a common goal.  For more substantial donations, particularly ones in which the family name will be recognized, involving the whole family can help instill a sense of pride in the family legacy.  As long as the elder generation is not asserting too much oversight or control over the program, family philanthropy almost always is an extremely positive experience for the younger generation. 

As an example, Amy and Bob have three children, ages 10, 12 and 17.[3]  Since they need to prepare their children to inherit their large family fortune down the road, family philanthropy could be an ideal practice opportunity.  Accordingly, Amy and Bob provide $1,000 annually to each of their children to give away on their own.  They also set aside $5,000 annually for their children to give away together.  Amy and Bob serve only as mentors to the children for this family philanthropy program.  They allow their children to explore their own passions, without judgment.  For the collective gift from all the children, Amy and Bob help facilitate the discussion, especially given the different age ranges of their children and their different communication styles.  In the first year, after visiting and volunteering at multiple charitable organizations, the 10 and 12 year old each gave their $1,000 to an animal shelter and the 17 year old gave his $1,000 to a micro-lending organization.  As a collective gift, the three children discussed the family’s values and vision with their parents and ultimately decided to give the entire $5,000 to a cancer research organization (which was related to the fact that their grandfather, who created the family fortune, died in his early 50s from cancer).  What made the gift especially meaningful to the family is that the children decided to make the $5,000 gift in the name of their deceased grandfather.  For the upcoming year, Amy and Bob are allowing their three children to decide how the funds for the family philanthropy program ($8,000) should be invested for the year.  If the investments do well, they will have more to give away, but if they take too much risk and make bad investment decisions, they will have less to give away.  It’s much better for children to learn to work together and manage a relatively small sum of money for charity at a young age, than to be unprepared to inherit millions of dollars when they are older.

Endnotes

[1] Andreoni, J., “Giving with impure altruism: Application to charity and ricardian equivalence,” The Journal of Political Economy  (1989); Andreoni, J., “Impure altruism and donations to public goods – a theory of warm glow giving,” Economic Journal  (1990); Dunn, E. W., Aknin, L. B., & Norton, M. I., “Spending money on others promotes happiness,” Science (2008).

[2] “Women Give 2013: New Research on Charitable Giving by Girls and Boys,” Lily School of Philanthropy, Indiana University, Women’s Philanthropy Institute (2013).

[3] Unless otherwise provided, the names, characters, businesses, places, and events discussed in the hypothetical examples in this article are fictitious. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.

Justin Miller is a National Wealth Strategist at BNY Mellon.

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