The importance of philanthropy as an effective tool to address global issues has been highlighted more than ever following the COVID-19 pandemic. From the mobilisation of millions of volunteers to the research and development of treatments and vaccines, the philanthropic response to the pandemic shows the sector at its best.
Whilst the reasons for giving are personal and varied, it is a common misconception that a desire to help or ‘give back to the community’ is the sole driver of a successful philanthropic outcome. What is given and how, will depend on the skills, circumstances, passions and priorities of both generous individuals and their families.
The common proverbial saying “shirtsleeves to shirtsleeves in three generations” demonstrates the widely recognised difficulties in transitioning wealth from one generation to the next. There are two aspects to consider in the course of family generational planning: firstly, passing on the family’s tangible wealth and assets; and secondly, conveying the family values and history for the benefit of the next generation. It is often the case that the latter of these is not considered and yet, recent research conducted on very affluent families whose wealth, impact and connection had been preserved for over 100 years, found that “without clear values and purpose for their wealth families tend to fragment and split up, struggle with entitlement and feel disconnected from the communities they live in”[1].
Philanthropy is not only a crucial building block in successful wealth transfer, but it also provides a platform for family members to discover their own passions, skills and interests, within the family context. Heirs are often expected to be deferential to their affluent elders who have generated wealth over the course of their lifetime. A lack of trust from elder generation to younger generation can be a key driver of the creation of inheritance trusts for heirs as beneficiaries. Such beneficiaries may only become entitled to their inheritance once they reach ‘financial maturity’ to be determined sometimes by age, sometimes by a third party (such as a professional trustee) or another alternative factor. Such determinants arguably do not equip beneficiaries with an opportunity to develop their financial maturity. Creating an environment that allows inheritors to exert influence over family enterprises in a philanthropic setting provides a more neutral opportunity for heirs to showcase and develop their skills, dedication, and credibility.
Philanthropy may further encourage family cohesion and avoid significant conflicts in transition of leadership from one generation to the next. Conversations surrounding the family mission encourage the alignment of values with wealth. Elder generations can share family history, values and basic principles through philanthropic engagement to be passed on from one generation to the next. Simultaneously, the encouragement of younger generations to offer innovative, alternative or technical solutions can challenge the existing family framework to grow and/or develop in ways that ensure family business longevity, relevance and presence. Such qualities strengthen many areas in the development and preservation of family wealth.
Philanthropy can provide a number of further benefits including acting as an estate planning tool for the transition of wealth across generations. Whilst money given to philanthropic concerns is no longer technically owned by the donating family it can still remain under their guidance and control if they become trustees and managers of such projects perpetuating the influence of the family over how that money is used and developed creating a lasting and worthwhile legacy. The engagement of the next generation together with a bespoke and focused philanthropic mission affords families an ability to flourish in a manner that goes beyond mere successful wealth transfer.
If you require any further guidance please feel free to get in touch with me or a member of our Charity Team to discuss further.
[1] Social Impact in Hundred-Year Family Businesses: How Family Values Drive Sustainability through Philanthropy, Impact Investing and CSR, Dennis Jaffe, Ph.D., Isabelle Lescent-Giles, Ph.D., and Jamie Traeger-Muney, Ph.D
