Family Philanthropic Journey: The Road Not Taken

Many families find the vision of a shared family philanthropic venture appealing, but all too often, the reality of the experience is a far cry from the dream. In this article, I outline the philanthropic journey through which I have accompanied several families and the successful approach through which we together developed a flourishing, multigenerational Family Philanthropic Enterprise.

First, let us look at two common if unspoken assumptions that underlie well-intended but floundering family philanthropy:

The Road to Disappointment #1: We want our children and grandchildren to be philanthropic, just like us. Read: How did such generous people as we are raise such selfish kids?

The initial impetus for family philanthropy often arises from unflattering observations like these: Our children no longer want to sit at the Platinum Donor Table at the Our Favorite Charity Gala where we are always recognized as big donors. What this tells us is that our children have become selfish. We can set them back on the right course by immersing them more fully in philanthropy. Some of our friends have private family foundations, what a perfect solution! The Mom and Dad Family Foundation. Our children will love it!

Almost always, however, they will not. Even worse, the children’s current apathy may turn into hostility, with the demand they spend increased time and effort focused on their parents’ causes, however laudable and successful these charitable efforts may be.

A true Family Philanthropy Enterprise is a process. It is a journey, not an event. At its best, family philanthropy is done “with” your family, not “at” them. Children and grandchildren many times do not enjoy the spotlight because they find themselves once again standing in their parents’ shadow at an event held by an organization to which they have no emotional connection that supports a cause to which they are indifferent.

The Road to Disappointment #2: We are all going to sit down together as a family and decide who we will give money to this year. Read: Dad and I have chosen these four charities. You kids can suggest but not decide how much Dad and I will give each one.

This well-intended approach, like The Road to Disappointment #1, continues to conceive of family philanthropy as hierarchical in organization and operation, with Mom and Dad at the pinnacle. Rather than bringing generations of family together, such an approach is more apt to increase frustrations for all involved.

Changing the Conversation: Impact and the 1040 Foundation. Instead of focusing on “giving away,” families on a successful philanthropic journey concentrate on creating impact significant to both a cause and to the individual family member. This is the essence of what I call the 1040 Foundation. Following is an example of how such a foundation might work.

Mom and Dad (or Grandma and Grandpa) take an annual charitable deduction on their IRS Form 1040 of between $100,000 and $150,000. Based on their income, this is below the percentage rules for charitable deductions for cash gifts to public charities. The donors are deeply interested in seeing their children become more active in philanthropy, but they have experienced frustrations such as those described above. In seeking a means of involving their children more deeply in philanthropy, they consider establishing a private family foundation as some of their friends have done, but those friends have experienced mixed results.

The donors discover another alternative in their church newsletter, which describes how they can establish a donor advised fund within the church’s own foundation. Unsurprisingly, they find the complex tangle of rules involved confusing, and contact their family wealth and estate advisor for additional guidance. After exploring with their advisor how well different philanthropic models match their family’s circumstances and responsibilities, Mom and Dad decide to create the Smith Family 1040 Impact Plus® Fund.

The Smiths invite their adult children and grandchildren to their favorite resort, where they have reserved rooms for everyone for the weekend. Included in the activities is a 90-minute gathering of the adult children on the Saturday morning, during which their advisor will introduce the plan. Having a professional advisor, rather than Mom or Dad, describe the plan helps create a sense of psychological distance, emphasizing the shift from passively hearing about yet another “charity thing Mom and Dad are doing” to a new venture in which every person present will enjoy real, active ownership.

A 1040 Impact Plus® Fund works in two stages: the Seed Stage and the Sprout Stage.

The Seed Stage: The Smiths have five adult children, ages 19 to 28, two of whom are married. Each unmarried child can allocate up to $5,000 to impact something they care about; each married child splits their $5,000 allocation with their spouse, with the couple left to decide whether they wish to combine funds or work separately. Although the Smiths also have grandchildren who will eventually be folded into this enterprise. It is important that the initial stage should concentrate on building the philanthropic skills of the adult children. They will subsequently use what they have learned to inspire and educate their own children.

The ground rules for the Seed Stage are simple, with guidelines such as these provided the adult children:

• Begin with a cause, not an entity. What do you want to see more of in the world, or less of, or ensure is preserved for future generations? A simple exercise is to look at a newspaper and circle in green what you want to see more of, and circle in red things you want to see less of.
• Using a service such as Charity Navigator or your local community foundation, identify nonprofit organizations in your community that focus on your chosen impact area. The only requirement is that the organization must be a 501(c)(3) and qualify for a charitable income tax deduction.
• You can spread your $5,000 impact gift among up to three charities, giving each a minimum of $1,000.
• Once you have selected the organization(s) you wish to fund, complete the 1040 Impact Plus® Grant Request Form, which includes the following information:
  • The name and address of each organization to which you plan to donate.
  • The organization’s Tax Identification Number (TIN).
  • The name of the organization’s contact person.
  • A 250-word description of what the organization does; and
  • A 400-word “passion statement” that expresses why this cause matters to you and how the organization(s) you have chosen will achieve impact with your gift.
• The family will gather annually to review together each member’s Grant Request Form, for each to learn more about what matters to you and about the community organization(s) you have chosen. Each meeting is presided over by the 1040 Impact Advisor, not by Mom and Dad.
  • Your choice is already considered final before the meeting. It is not subject to a vote by anyone else in the family.
  • Each family member is to assume, regardless of what they may privately believe, that others’ choices are made thoughtfully and in good faith. The discussion should be as civil, supportive, and encouraging as possible. The meeting is neither a debate forum nor a competition, and “constructive criticism” is prohibited, as all present have already made their funding decision.
• Shortly after the conclusion of the meeting, we will prepare the appropriate check(s) and gift letters(s) so you can make an appointment to deliver your gift(s) in person. We suggest you invite another family member to an even fuller understanding of your giving choices, with respect to both your cause(s) and the nonprofit(s) whose mission concerns them.
• So, what does all this accomplish? We named this approach 1040 Impact Plus® because it goes beyond identifying worthy causes and writing checks in several ways:
  • Each family member can explore and explain their individual philanthropic goal and journey. This is the most critical aspect of 1040 Impact Plus®, and, perhaps, the most challenging for Mom and Dad. It is important that truly little be “out of bounds” in terms of causes. In the initial rollout of the plan, the advisor must stress to all parties the nonjudgmental nature of this undertaking. The passion statement is important not only as the personal expression of a family member’s deepest concerns, but also as a means of helping other family members develop or deepen their empathy for a cause dear to someone else. Failing to do so is likely to result in donors making allocations not for the purpose of relieving human misery, but out of an impulse to inflict a bit of misery on a judgmental family member.
  • Each family gets to have the visceral experience of impacting something that matters to them.
  • The family acquires a deeper, fuller understanding of (and, ideally, increased respect for) other family members in ways not previously possible; and
  • Financial wealth transcends from the merely material into a tool that makes life more meaningful and joyful for the individual and which enhances intrafamily relations.

Some families, regardless of net worth, retain their Seed Stage Family Philanthropic Enterprise for years. They like its simplicity, the kind of interactions it stimulates, and the sense it offers of making a real impact. Other families, however, prefer to expand their philanthropic efforts into a more formal structure that can be cultivated across generations. Enter the Sprout Stage with the Donor Advised Fund.

The Sprout Stage: The Family Donor Advised Fund (DAF). The family described above kept the Smith Family 1040 Impact Plus® Fund as their philanthropic engine for three years, which translated into six rounds of impact gifts. After the first round, they so enjoyed it (and each other) that they decided to make impact gifts every six months rather than just annually. As the family is geographically dispersed, they held the fall round in person around Thanksgiving and the spring round virtually via Zoom and an accessible document-sharing program like Google Docs or DropBox.

The success of this process prompted the family to try something “more permanent” in structure. Mom and Dad want philanthropy to be part of their legacy for children, grandchildren, and beyond. After discussion with their advisor, the family decided to establish a DAF using the Smith Family 1040 Impact Plus® Fund name. While the details of this process will be reserved for another column, two key factors enter into this decision:

• The sponsoring organization that is to hold the family’s DAF must have a broad mission and purpose statement, so that the diverse interests of the family can be accommodated now and in the future; and
• A clear methodology must be laid out to establish a family advisory board and assign key roles and a succession plan for those who hold them.

Although Mom and Dad initially fund the DAF with $500,000, all fund assets are considered communal family property to be used for the purpose of supporting causes important to individual family members. This marks a major shift in mindset for Mom and Dad and for all family members who have come to appreciate how much their philanthropic enterprise has benefited them as individuals as well as their relationships with the other family members. Decisions around the philanthropic dollars are made by all involved adult family members. Structurally, the Sprout Stage requires the coordination of two administrative structures, one internal, the other external.

Internal: The DAF is governed by a board of advisors composed of all adult family members. The advisor serves in an ex officio capacity, convening these meetings and ensuring minutes are kept to record important decisions. One member of this board also serves as a liaison to the investment manager.

External: Every DAF has a sponsoring organization, and it is in the interest of both the family and that organization to identify which family members will serve as contact persons. Two members of the board of advisors serve in this capacity, one as the contact person to the sponsoring organization, the other as the successor to that position, who shadows the contact person. The contact person’s term of office is two years and when that term draws to a close, the successor assumes that role.

Although membership on the board of advisors is mandatory for adults who wish to participate in this enterprise, service as investment manager liaison, and as sponsoring organization contact person is encouraged but not required. Should no family member be available to assume such responsibilities, the advisor may do so in their stead.

In addition to having a more complex philanthropy structure than the Seed Stage, the Sprout Stage also expands the philanthropic experience to include grandchildren on an age-appropriate basis. The Grandchildren’s Philanthropic Enterprise occurs once a year around Thanksgiving or whenever the in-person philanthropic round is held. Grandchildren are eligible to request grants under terms like the adult enterprise:

• Elementary school-age: $100
• Middle school-age: $200
• High school-age: $500
• Age 18-20: $1,000
• Age 21-24: $2,000
• Age 25 and up: $5,000

With its extension to another generation, the Sprout Stage philanthropic process needs to be a bit more complex because of its educational purpose. Minors are required to do a brief, ageappropriate presentation to the extended family attending the annual Family Philanthropic Enterprise meeting. This is a tremendous learning opportunity for all. The little ones need some help from their parents, a process parents find to be rich with opportunities to deepen their bonds with their children. I have had the joy of watching a 5-year-old present his allocation of $100.

Using a white posterboard covered in glued-on pictures (and with a little help from his mom), he described his desire to impact the local volunteer fire company because “they protect us from fire.” The smile on his grandfather’s face at hearing this little boy’s passion concerning his chosen cause was filled with transcendent joy and with hope for the future of his family. Older children have also impressed their family with the unexpected sophistication in problem-solving they reveal. Several cousins in their late teens, for example, combined their allocations so they might have a greater impact on a cause that mattered to them all.

Once the family has enjoyed a successful DAF experience, they may wish to move from the Sprout to the Seedling Stage to establish a private family foundation that will expand even further the family’s impact on their community and on each other. The journey to this considerably more complex destination must never be rushed. Each of the many aspects involved in running a family foundation must be explored thoroughly with the guidance of the advisor and funding area-appropriate professionals.

Like parenthood itself, growing philanthropy within a family is a process that cannot be hurried. A family philanthropic enterprise is most successful (and enjoyable!) when its members mutually encourage the gradual but real unfolding of independence and empathy over time. Our approach is designed to ensure the family philanthropic journey is less a Road to Disappointment and as much a Highway to Heaven as circumstances permit.

Tim Belber is adjunct professor of estate planning at The American College of Financial Services and holds the Charles E. Drimal chair in estate planning. He teaches in the Chartered Advisor in Philanthropy® (CAP®) program. Belber is the author of “The Middle Way: Using Balance to Create Successful Generational Family Wealth Plans.” He has authored numerous articles and has been quoted in periodicals including the Wall Street Journal. He is a member of the Legacy Wealth Coach Network, a founding member of the Collaboration for Family Flourishing, and a dean for the Purposeful Planning Institute. He can be reached at tim.belber@theamericancollege.edu.