Sound asset stewardship and family unity each play a tremendous role in successful generational wealth transfer. Here’s why philanthropic giving can contribute to both of those goals.

This article is the third in a series taken from The One Page Legacy Plan by Phil Tobin, a free downloadable eBook from iGiftFund. In this piece, we’ll explore how philanthropic giving can contribute to strong asset stewardship throughout multiple generations.

If you’ve prudently managed your assets throughout your lifetime, and plan to pass those resources down to the next generation of your family, here’s a statistic you might find alarming: 70 percent of estates fail following their transition into the hands of the heirs.

In 2002, a landmark study by Roy Williams and Vic Preisser of the Williams Group surveyed over 3,000 families who transitioned their wealth. Their findings revealed that, for those estates that failed, the money often transitioned well, but the families did not. Separating the successful (at retaining and building their assets and maintaining family unity) from the unsuccessful (losing or dissipating their assets with accompanying increase in family discord) produced a few critical insights.

What did successful families do well? In these cases, the entire family (including heirs and spouses) had reached consensus on a long-term mission for family wealth, as well as the strategy and roles necessary to attain the mission. Additionally, heirs and their spouses participated in defining their post-transitional roles and responsibilities, and took responsibility for preparing to assume those roles.

The unsuccessful scenarios painted a different picture. In these cases, only the parents (working with professional advisors) designed the estate transition, focusing upon the traditional elements of taxation, preservation, and control. Heirs only—not including their spouses—discovered their responsibilities at the time of the estate transfer, with widely varying role experiences prior to that time.

The successful stories had a few common traits:

  • A focus on the heirs, preparing and involving them for the post transition.
  • A sense of family unity.
  • Confidence that all family members knew what they faced.
  • No hidden agenda about individual interests.
  • Spouses were included.
  • Successful post-transition families had developed the capacity and accumulated training/ experience to work through the normal difficulties that crop up following the transition.

Preparing for success through philanthropy. After interviews with ninety-one heads of families, Williams and Preisser concluded that family philanthropy (either through private foundations or donor advised funds) can play a significant role in improving the readiness and self-esteem of the heirs. In fact, philanthropy may be one of the most overlooked tools available to families in preparing their heirs for wealth and responsibility.

Why? Many of the duties and necessities involved in effective philanthropic giving can serve the dual purpose of preparing heirs for good stewardship of inherited family wealth. When they are involved in philanthropy, heirs can share in the learning and see that parents are learning at the same time. That shared learning, where all parties are “beginners,” allows the removal of pretension and enhances the intimacy that stems from shared personal growth.

Family philanthropy also involves a guiding mission; it involves determining why certain causes are chosen, and determining how those causes align with a family’s values. A family that does not share common values, common mission, and authentic trust will not remain together. Finally, the involvement of the entire family prior to the transition proved to be one of the key differences defining successful post-transition families.

Key tenets of family philanthropy. The process for successfully transferring philanthropic wealth has to include the entire family. This is very much a group project and group buy-in is needed. It is critical for the family to identity and develop a shared mission based on common values. Working together as a team, family members have the opportunity to be there for each other and to step up into new roles, sometimes with the advantage of mentoring. Competency impacts self-esteem, and self-esteem in turn favorably impacts intergenerational harmony.

The key ingredients to successful family philanthropy are the same required for developing a winning legacy strategy. They include:

  • Communication – based on authentic trust and caring in developing, articulating and embracing common family values and common family mission.
  • Openness – the ability to speak openly, honestly, and freely on matters important to the family.
  • Accountability – how do families evaluate their effectiveness in carrying out the family mission?
  • Consensus building – reaching agreement.

Involving the entire family in philanthropic efforts will help heirs develop these critical skills—which will not simply serve them well for wealth transfer, but in all areas of life.

Phil Tobin is Chairman and President of iGiftFund.

Next in this series:
Successful management of family assets through wealth transition involves understanding what family wealth comprises. We’ll break down common sources of family wealth and special considerations for each of them.

About iGiftFund

iGiftFund is an IRS-recognized, independent, public charity that sponsors donor advised funds.  Its mission is to inspire donors to create, preserve and distribute their philanthropic legacy and to make a truly remarkable impact on the lives of others, including the donor.

With the hallmarks of simplicity, accessibility and low administrative fees, iGiftFund sets the standard of excellence in the industry and distinguishes itself from the large, national commercial and independent DAF sponsors. Based in Hudson, Ohio, iGiftFund works nationally with donors and with financial advisors on their familiar investment platform, in open architecture. iGiftFund’s administrative fees are the most competitive in the industry, starting at just 45 basis points on the first $500,000 tier.