Transferring wealth is inevitable. Retaining it is not.
Financial Advisors who build multigenerational relationships don’t protect just their clients’ legacies – they preserve their own books.
Are your clients’ children at risk of “Sudden Wealth Syndrome”?
Financial advisors leveraging donor advised funds (DAFs) to combat this risk also instill financial responsibility, build family values, and create lasting philanthropic legacies—all while maximizing tax benefits, strengthening client relationships, and preserving their AUM.
What Is “Sudden Wealth Syndrome”?
Sudden Wealth Syndrome (SWS) describes a phenomenon where children of affluent families, often third-generation heirs, grow up disconnected from the effort that built their wealth.
According to an article in National Geographic Kids, “…too much stuff can make kids unhappy…”. Family conversations about “wants vs. needs” are foundational. Additionally, “Higher levels of gratitude are associated with lower levels of materialism.”
The article states:
“… one study…..asked adolescents to write down who and what they were thankful for in a gratitude journal every day. In about two weeks, they felt they needed fewer things in their lives…..And not only that but they felt they needed to share what they have with others.”
Without purpose or financial literacy, they may squander inherited assets, leading to the adage “shirtsleeves to shirtsleeves in three generations.”
Tip: Financial advisors – this is a chance to guide clients toward solutions that preserve wealth and values across generations.
Donor advised funds (DAFs) are powerful tools to tackle SWS. By integrating DAFs into wealth management strategies, advisors help clients teach their heirs responsibility, align family values, and create a meaningful legacy while optimizing tax efficiency.
How Donor Advised Funds Are a Solution
DAFs allow donors to contribute assets, receive immediate tax deductions, and recommend grants to charities over time.
DAFs offer a unique solution to combat Sudden Wealth Syndrome.
Teaching Financial Responsibility
Involving children in DAF grantmaking fosters budgeting, decision-making, and accountability. Advisors can guide families to include younger generations in charitable discussions, helping them value money and impact.
Reinforcing Family Values
A DAF serves as a platform to define a family’s mission, encouraging collaboration across generations. This collaboration creates a sense of gratitude that is contagious.
According to that same article in National Geographic Kids,
“Dopamine is also associated with learning; when something makes us feel good, we’re more likely to repeat the behaviour (sic).”
Creating a Philanthropic Legacy
DAFs allow clients to appoint successor advisors, ensuring their vision endures. This keeps heirs engaged, reducing wealth loss risks.
Tip: A DAF also acts as the “glue” for financial advisors to retain AUM and advise families beyond the current client to the next generation.
Maximizing Tax Efficiency
DAF contributions result in immediate income tax deductions (up to 60% of AGI for cash, 30% for appreciated assets) and eliminate capital gains tax. DAF assets grow tax-free.
Tip: At iGiftFund, financial advisors continue to manage DAF assets.
iGiftFund’s open-architecture platform lets advisors manage assets with any custodian, at all account sizes. (iGiftFund DAF accounts start at $25,000).
Simplifying Giving
A smarter way to give, organize, manage, and track your philanthropy from one central resource. Clients spend less time on coordination and more time on making the impact they want to see in their communities and the world.
Introducing DAFs to Clients
Simple to Implement, Powerful in Impact
To understand how DAFs work, explore the basics here.
Strategies for positioning DAFs as a smart response to generational wealth transfers and SWS:
Start the Conversation Early
Identify Vulnerable Clients and Families: Clients with significant wealth or concerns about heirs should be top of mind.
Tip:Ask questions, prompt thoughtfulness.
How would you like your children to relate to the wealth you are passing onto them?
How should your wealth shape their future – not just financially, but personally?
Frame DAFs as a Legacy Tool: DAFs teach responsibility. A DAF helps children learn stewardship and respect for wealth through philanthropy.
Showcase Tax and Financial Benefits
Appeal to Tax-Savvy Clients: Highlight deductions, capital gains elimination, and tax-free growth.
Tip: Explore how iGiftFund has solutions beyond DAFs, that financial advisors manage.
Donor Restricted Funds, including:
- Designated Funds
- Endowments
- Field of Interest Funds
- Scholarships
- QCDs (can satisfy RMDs)
Position Yourself as a Partner: With iGiftFund, advisors retain investment management. Low fees (starting at 45 basis points on the first $500,000) and complex asset contribution options (e.g., real estate, cryptocurrency, private stock, etc.) enhance value.
Engage the Next Generation
Involve heirs in Grantmaking: Foster philanthropy early by allowing children guided participation in the parents’ DAF.
Check out this iGiftFund Resource for more: Acknowledge the Great Wealth Transfer – when $84 Trillion will change hands over the coming decades and in generational wealth transfers.
Use examples, such as “Martha’s Story” in the above article, as teaching moments.
Anticipate Client Hesitations
- “It’s Too Complicated”: iGiftFund’s DAFs are set up in a day, with no legal fees.
- “I Lose Control”: Donors retain advisory privileges, with iGiftFund ensuring compliance.
- “It’s Only for the Ultra-Wealthy”: iGiftFund’s $25,000 DAF minimum is accessible.
Building Stronger Client Relationships
Don’t underestimate the power of discussing philanthropy with your clients.
Be the financial advisor who initiates the charitable giving conversation with clients, as opposed to the financial advisor who reacts to the topic of philanthropy brought up by the client.
It could be game-changing for your practice!
Final Thoughts
Sudden Wealth Syndrome can destabilize family wealth.
Become the trusted advisor – proactive vs. reactive. Help clients turn this challenge into a legacy of impact with donor advised funds.
DAFs combat wealth dissipation by
- providing structured stewardship,
- encouraging long-term thinking, and
- building financial acumen.
By involving heirs in managing charitable assets, advisors prepare them for responsible wealth management, ensuring wealth endures across generations.
Tip: For advisors, DAFs enhance client relationships, reduce client attrition, and position you as a steward of both financial and familial legacies.
Donor Advised Funds are a transformative tool for navigating the upcoming Great Wealth Transfer. By fostering financial literacy, philanthropy, and family unity, DAFs help preserve wealth and strengthen client relationships.
Obtain your free copy of The One Page Legacy Plan, a guide on using DAFs, by iGiftFund Founder and Chairman, Phil Tobin. This resource complements your advisory services in building family legacies.
Contact iGiftFund – Our experienced professionals are here to assist and provide insights on seamlessly integrating DAFs into your practice.
This information contained in this article is intended solely for educational purposes.
The content is not intended, and shall not be construed as professional advice (or a substitution for) including but not limited to legal, financial, tax or any other professional interpretation.