In my work with high net worth families, philanthropy can be one of the great positive experiences they share together. When done well, these families lever their philanthropic engagement to both impact the world and develop their family’s competence and connection. When done half hazard outside of a strategy, damage to family relationships can be substantial.
What Makes Families Successful
Building a successful multi-generational legacy is never easy, but it does boil down to a few core principles. First, families that succeed figure out how to work effectively together. This requires the development of good communication, trust, decision making processes and forms of accountability. Second, it requires the sound stewardship of assets in structures that are well suited to the situation. Too often families are saddled with structure that don’t work and the family dynamics swamp the well-intended structures established by advisors. Third, families that succeed help the rising generation mature into become effective and connected adults – able to stand on their own two feet and work well with other family members. Philanthropy can play a role in each of these areas.
Too often clients, following well-meaning professional advice, create philanthropic structures, such as a foundation, when the underlying family culture will not support them. This may be driven by a desire for a quick tax deduction, for status, or because it seems like the right thing to do. It doesn’t help that philanthropy is often touted by advisors and the press as a “best practice” to parents who desperately want their children to be successful and the family to be closer. In these cases, a foundation may serve only to institutionalize dependence and dysfunction. Creating a foundation to influence your adult children is a lot like having a baby to save a marriage. It not a wise strategy.
High net worth families who are well prepared find the philanthropic journey to be extraordinarily powerful. The grounded and strategic use of philanthropy can indeed build family cohesion, teach children about finance and business models, foster the development of compassion and social engagement and so on. In these families the reality matches the hype and even exceeds it. Families that really lever their philanthropy use it not only to contribute to society, but also to broaden their social networks in ways that create personal and entrepreneurial opportunities for themselves and the family. Sitting on boards and developing relationships with peers becomes a powerful enhancement to family connection and effectiveness.
As an advisor, you need to remember that you not only need to prepare the money for the family, but also to engage families to prepare them for the money, either yourself or with the help of outside consultants adept at managing and shifting family dynamics.
Core Questions To Be Addressed
Philanthropy can be an extraordinary tool to develop positive outcomes in high net worth families, but only if the groundwork is properly understood and developed. In working with families to assess their readiness to do philanthropy together, it is important for advisors to ask some key questions:
If the answer to these questions is an emphatic yes, then philanthropy may be the right way to go. If the answers are unclear, then the family should experiment before putting complex structures in place. If the answers raise red flags, then, no matter how appealing the idea of family philanthropy is on an emotional or tax basis, the advisor should seek to dissuade the client from imposing this particular form of misery on their family without more work.
Achieving high performance family philanthropy requires real collaboration between family members, as well as with advisors. If substantial funds are involved, the family is almost always best served by having the help of an outside consultant equipped to help them on a cultural level and engage in best practices to effectively identify shared values, goals, level of engagement and accountability. This sort of help nurtures successful outcomes for high net worth families.