Involving family in charitable wealth transfer

 

 

An incredible 70% of families lose their wealth by the second generation.1 The three most common obstacles to successful transfers of wealth are unprepared heirs, a lack of communication among family members, and a missing common vision. Your clients who involve their families in wealth transfer conversations and decisions can address these obstacles, not only helping the family to avoid the proverbial fate of going from “shirtsleeves to shirtsleeves” in three generations’ time but also addressing their charitable legacy and creating a charitable plan.
 

Successful wealth transfer to a family member is rarely accomplished without advance communication. This is also true for charitable bequests. Unprepared heirs:

  • Are more likely to find charitable bequests to be a burden, rather than the gift they are intended to be.
  • May be surprised by the wealth of their parents or benefactors, and wonder why they passed down their wealth this way.
  • Who inherit donor-advised funds may be unfamiliar with the tool and not understand why they weren’t given direct control over the assets. They also may not know whether to grant from the account according to their own interests or those of their benefactors.


"I have one daughter and I love her very much, but if I have it my way she won’t get a penny of my wealth,” says one Vanguard Charitable donor. He raised her with the expectation that she would build her own wealth. He was passionate about three different causes and wanted to ensure his money went to support them. He was very clear with his daughter about this, from an early age. Since then, his daughter has achieved her own successes and is equally as philanthropic as her father.
 

 


This uncertainty frequently leads to stress, anxiety, and a failure to accomplish a charitable plan—outcomes that are likely the opposite of your clients’ intentions.

Your clients who actively communicate what philanthropy means to them and how they’d like to see their family keep alive their charitable program are more likely to successfully transfer their legacy.

  • Start the conversation early. Beginning to talk about wealth transfer when children are young helps them to understand your clients’ expectations for their wealth—charitable and otherwise.
  • Tailor the discussion to the heirs’ age. Set the example in simple ways with young children—try collecting money or goods to donate to charity. Teens, who may be more self-focused, can learn how to consider the plight of others by volunteering. Adult children approach philanthropy informed by their own life experiences and choices.
  • Explain the benefit of philanthropy. Passing on a philanthropic account should be a gift and help bring family members together. Clients should frame their discussions with this in mind and talk about the joy they get out of philanthropy.
  • Create a conversation, not a monologue. An interactive conversation with give-and-take is more likely to leave both parties satisfied and with a greater understanding of each other.

For more on the way giving attitudes and traditions are passed from generation to generation, consult A tradition of givinga first-of-its-kind research project produced by the Lilly Family School of Philanthropy at Indiana University in partnership with Vanguard Charitable.

What do your clients and their families hope to achieve with their philanthropy? Some examples:

  • We want to help children across the country have happy, healthy lives.
  • We aim to ensure that the basic needs—food, shelter, clothing—are met for all people in our community.
  • We plan to advance and promote religious education and tolerance in a specific country overseas.


A mother in her 80s attempted to engage her two children in her passion of supporting inner-city youth, only to discover her children did not share the same interest. When prompted to share a story of a time they felt connected as a family, one of the children mentioned a service trip in Nepal. The dialogue gave the family the opportunity to explore what legacy meant to them. They decided to combine their interest in international development with the mother’s interest in children, and discussed ways to develop their philanthropy around aiding children in the developing world.
 

 

 

This shared vision can become the foundation of a charitable plan, whether for the client alone or for the entire family. A charitable plan typically involves creating a charitable mission statement, charitable goals, a giving legacy, charitable strategies, and more.

1Roy Williams and Vic Preisser, 2003. Preparing heirs: Five Steps to a Successful Transition of Family Wealth and Values.