How to use family philanthropy as a vehicle for transmitting values and working together multigenerationally.  

  • Family philanthropy involving multiple generations starts with a charitable plan that includes the family’s needs, interests, assets, and goals.
  • A family needs to think not only about its portfolio of assets, but also its portfolio of interests, and what they hope to achieve from their family philanthropy. 
  • With open channels of communication, you can create a philanthropic legacy for multiple generations, engaging the family and benefiting the causes the family supports. 

For many individuals, philanthropy is one of the more gratifying parts of estate planning. Adding in a multigenerational component can make it even more meaningful and compelling. Just as every family is unique, so is their philanthropic approach, and there is no single way to involve a family in philanthropy.

What is multigenerational philanthropy?
In some respects, multigenerational philanthropy is defined by what it is not. It is not the senior generation showing younger generations how to engage in philanthropy, what we might call the “Watch Grandpa Give Wisely and Well” model. Rather, it is the family acting together collaboratively on philanthropy that engages the family as a whole. Because families have complex dynamics, so may family philanthropy. Like so much of estate planning, multigenerational philanthropy combines the highly personal and the highly technical. From a tax and wealth perspective, for the past few years philanthropic families have had the benefit of the “charitable trifecta:” strong appreciation in the stock market, increased income tax rates, and low interest rates. So for many families, the resources to give were there; the potential tax savings from charitable contributions were greater than in the past; and lower interest rates could also provide benefits to the family.

Although interest rates have started to increase in 2018, they still remain at relatively low levels. And after the 2017 Tax Cuts and Jobs Act, many families can still make tax-efficient gifts. The charitable contribution deduction continues to provide significant tax savings for taxpayers who can itemize. Even though lower tax rates generally bring lower tax savings from deductions, some families will see greater deductions, as the Act eliminated the phase out of itemized deductions applicable to higher income taxpayers (through 2025). And for donors who are very philanthropic, cash gifts to public charities are now deductible to the extent of 60% of adjusted gross income (through 2025), rather than 50% in the past. For families of considerable wealth, the estate tax remains in place, providing yet another tax incentive for charitable giving. For donors who can’t itemize every year because of the increased standard deduction, there are strategies to bunch deductions so that they can make deductible gifts in some years.

Philanthropic giving, however, is about much more than tax savings. From an emotional and family values perspective, many families are looking at issues as complex in their own way as the tax and financial issues: what is the right amount of wealth to leave the next generation? And how can parents or grandparents ensure that the next generation inherits not just assets, but the family’s values? For many families at all wealth levels, charitable planning is an important part not only of managing income and estate taxes, but of resolving these personal concerns about transmitting family wealth and values in a meaningful way. 

Where does a family begin?
Like all planning, charitable planning involving multiple generations starts with the family’s needs, interests, assets, and goals. Charitable planning really is like investing: a family needs to think about its portfolio of assets, but also its portfolio of interests. Some assets are more tax-effective than others for funding charitable gifts, and different structures will be more effective for different assets and different philanthropic goals. A family with income needs and highly appreciated securities as their principal asset is going to do something very different from a family that does not need additional income, but whose principal asset is a closely-held business. And a family that wants to benefit a specific charity will be looking for a different solution than a family that wants to create a grant-making entity for the long term. As families develop a family philanthropic portfolio, they need to consider what assets work best for family philanthropy, and which assets may be best for personal philanthropy or kept for family investment. But even as they think about the assets to give, a family also needs to think collectively about its philanthropic interests. 

Please see important disclosures at the end of the article.

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