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Hearing The Children
Advisors should be an active participant in helping wealthy families bring children into philanthropic leadership roles.
By Mollie Bunis
The adage “children should be seen and not heard” may be appealing at times, but when it comes to a family’s charitable planning, it’s certainly not the best advice. Rather, involving the next generation in family philanthropy can make the difference between the successful transfer of wealth and values and the loss of family wealth and unity. Thoughtful philanthropic planning can play an important role in preparing the next generation for wealth and responsibility.
By incorporating multi-generational philanthropy into their practices, advisors can serve as invaluable resources for founding generations seeking to foster proper stewardship of their family wealth and values among their children and grandchildren. This process also provides the opportunity for advisors to develop relationships with next generation members who are just beginning to assume responsibility for the family’s wealth and philanthropic investments. Indeed, advisors who go above and beyond to meet their clients’ philanthropic needs will find that a more holistic approach to wealth management enriches their advisory practices.
A Market Opportunity
Advisors who can initiate multi-generational philanthropic planning sessions have a competitive advantage because clients want to see the next generation take lead roles in philanthropic activities.
Family foundation trustees and high-net-worth individuals are increasingly involving the next generation in planning philanthropic legacies and managing charitable giving vehicles. A survey released in January by New Philanthropy Capital showed that 85% of multifamily offices include children under age 21 in family philanthropy discussions and planning. A Bank of America survey confirms the trend—53% of baby boomers involve their young and adult-age children in charitable giving decisions. And, according to the National Center for Family Philanthropy, nearly 80% of family foundations plan to continue beyond the current generation of leadership, and almost 60% believe that next generation members are enthusiastic about participating in the family’s philanthropy.
The desire to involve the next generation in philanthropic planning should come as no surprise. Philanthropy offers affluent clients an opportunity to teach the next generation about financial stewardship and to do so in a context of giving back. It also offers a tangible project in which children can be actively involved when they may otherwise be too young to participate in the family business or other wealth planning activities. Research consistently indicates that proper modeling of family philanthropy can help children understand wealth not as an identity but rather as a tool they can use to make the world a better place.
Baby boomers who have spent the past 30 years accumulating wealth are now at the stage of life when they are more focused on spending and giving away their assets. This means that if your client has a foundation, or any other formal charitable giving vehicle, he or she is likely grappling with how, and when, to include younger family members in the charitable planning process. At the same time, their Gen Y children are looking for ways to put their wealth to work for the social good. Studies indicate that Gen Yers are far more socially conscious than their parents were at their age. This is why there are a record number within this age group volunteering.
This “perfect storm” presents a ripe business opportunity for advisors to engage older clients and their children or grandchildren in the family’s philanthropic planning.
More often than not it is a trigger event that presents the opportunity for including the next generation(s) of family members in the philanthropic conversation. Such opportunities may arise when clients:
• Sell a business and wish to establish a giving vehicle as part of the transaction;
• Come into an inheritance or infuse additional capital into a giving vehicle;
• Consider establishing a foundation (or other type of formalized giving vehicle);
• Want to establish a corporate foundation as part of the family business; or
• Want to ensure their charitable interests are represented in their estate plans.
It is important to seize the opportunity created by a family’s trigger event to identify a client’s wishes regarding next generation involvement. Remember: The strengths and values of a family foundation are best passed down while the senior family members are still living. This allows for a family’s values to be more easily transmitted from one generation to the next as children and grandchildren learn directly from their parents and grandparents.
Advisors should encourage clients to be intentional about plans for engaging the next generation. A deliberate approach is more likely to ensure continuity throughout the generations. However, there is no one “right” approach.
The paths to multi-generational involvement are as different and numerous as the families themselves. Therefore, strategies should be customized to reflect the particular personalities, skills, and life experiences that families bring to discussions about their wealth and values.
There are many ways to engage clients in multi-generational planning. Often, bringing in a professional philanthropic advisor to work with clients expands your team of experts and provides clients with the information and support they will need as they move forward. It also allows advisors to build a knowledge base around philanthropic planning and to solidify client relationships.
Several activities can facilitate a more effective and meaningful multi-generation experience, such as:
• Finding ways to effectively communicate with younger generations. Encourage clients to share family history, describe the motivations behind the philanthropy and define the goals they hope to achieve with their charitable investments. Letters can serve as a record of the family’s history while also providing a mechanism to formally invite the younger family members to participate in the family philanthropy. Conversations about values and vision foster meaningful dialogue across generations and help guide the next generation in carrying on the family philanthropy.
• Creating opportunities to meaningfully involve heirs in hands-on learning. For example, clients can set up “mini foundations” or donor-advised funds with smaller amounts of money for heirs to manage. Or, a family can establish a junior board of directors or set aside a pool of discretionary funds over which the next generation has spending authority. These structures can serve as training grounds, helping the next cohort of trustees learn and practice the governance and grant-making skills they will need to serve in leadership positions.
• Providing a budget that allows next generation members to create their own learning plans. This is based on the assumption that they will be most interested in the activities they choose for themselves. Members can use the funds to attend conferences, purchase resource materials, and participate in peer networks. This training will help the next generation make better use of the family’s charitable assets and provide valuable lessons for managing family wealth.
• Drafting a formal succession plan that outlines how multiple branches of the family will be represented. This should include how spouses will be involved in the philanthropic leadership structure. The succession plan should also include specific criteria (in terms of age, education, volunteer service, etc.) that would make family members eligible to serve as trustees. Geographic requirements should also be taken into account. For instance, do family members need to live in the same geographical region where the funding is directed? If the family is spread out in several regions, do they all need to be represented? Finally, a succession plan should clearly articulate the responsibilities of trustees. Developing “job descriptions” often helps families decide what qualities and skills they think are most important for trustees to possess. If requirements for leadership are made clear from the start, there will be less room for conflict later on.
Many of these activities can be undertaken in the context of family meetings or retreats. Philanthropic advisors can help to plan and facilitate such events, allowing all generations the chance to collaborate around creating a shared vision for their philanthropy. If these family gatherings are convened on a regular basis, it can increase the likelihood that the founding generations’ values will be passed down to the next generation in a way that adheres to family tradition while remaining flexible to the divergent interests of subsequent generations.
However, as with any exercise in family collaboration, the philanthropic planning process will inevitably involve a certain degree of conflict. Clients should develop a conflict management plan to establish guidelines for managing disagreements. For example, while some families require consensus before making a decision, others develop a compromise strategy in which the “losers” of one decision are ensured a “win” in another decision.
A Process, Not an Event
Philanthropic planning is a process, not an event. Working with a philanthropic advisor not only can strengthen a family’s philanthropic program in the long term, but it can also lead to a strong relationship between financial advisors and clients. Helping clients prepare for and implement leadership transitions enables advisors to form multi-generational relationships with clients’ families and ensures that assets remain under management for years to come.
Mollie Bunis is a philanthropic advisor with Strategic Philanthropy Ltd., a philanthropic advisory practice based in Chicago serving clients worldwide.