By Carly Doshi
Despite some predictions that charitable giving would decline this year due to the now-doubled standard deduction and lowered tax rates for corporations and many individuals, many wealthy families gave to charity in 2018—in a big way. Father-daughter pair Ron and Debra Perelman gave a $65 million gift to Princeton University, Chris and Lisa Jefferies gave $33 million to the University of Michigan Law School, and Jeff Bezos and his family committed $2 billion to homelessness earlier this year, distributing $97.5 million to 24 homelessness charities via their Day One Fund.
Private family foundations continue to be a favorite vehicle among families seeking to make a positive and long-lasting impact on the world. While tax planning is also important, legal and financial advisors should remember that the non-tax benefits of establishing a family foundation are often the most profound, and can instill good values and lessons for the whole family, during tax season and throughout the year.
Share family values. Private family foundations aren’t just about giving money away, they’re about giving money away as a family. The choice of issues and organizations a family supports are that family’s values in action. Including multiple generations in the conversation has the added benefit of passing on values (and the accompanying stories) from one generation to the next.
Practice good decision-making. Identifying worthy potential grantees and allocating funds among them requires communication among family members, and a degree of negotiation—essentially, it’s an exercise in practicing teamwork. This practice of decision-making over time can prove beneficial for other, non-charitable family decisions in the future. Research has shown it’s one of the key predictors on long-term family harmony.
Provide a purpose. Foundations can employ staff, including family members who may wish to dedicate themselves full time to the charitable pursuits of the family. In cases where your client owns a family business, the foundation can provide an outlet for family members not involved in the day-to-day of the business.
Teach financial literacy. Participating in a foundation board involves, among other things, financial oversight of the organization’s investments and expenses. Including younger family members in foundation finance conversations provides an introduction to key financial concepts, and involving them in investment and spending decisions teaches responsibility and leadership skills.
Establish an effective multigenerational structure. A well-run family foundation promotes unity within the family and can create a bond that can last for generations. Given that discord among family members is a leading reason for the dissipation of family wealth, foundations may be tools for effectively maintaining dynastic wealth structures.
Even an experienced advisor may be well-versed on tax concerns but less comfortable discussing a family’s legacy. If you’re unsure of how to begin, consider that charitable planning, like all financial, estate, tax, and investment planning, begins with a client’s goals: Encourage a client family to spend time articulating their values and vision, assessing their interests, considering their need for and desired level of involvement, and determine the assets to be contributed.
Encouraging your clients to start this process as a family can have a long-lasting and deeply beneficial impact that far outweighs a tax deduction.
Carly Doshi is SVP, Head of Philanthropy and Family Governance at HSBC Private Banking.