Philanthropy can be hugely rewarding for family members and make a positive impact in the community – but getting advice is essential.
Charitable donations made through people’s wills are anticipated to grow beyond the historical 10-year, 25-year and 40-year annualised average growth rate, according to fundraising consulting firm CCS.
Although gifting from one’s estate remains popular, there’s also a rise in lifetime giving as family philanthropy grows in popularity. While giving back is hugely rewarding for an individual, it can be even more worthwhile when shared with family.
“It’s a way of exploring what’s important to a family, what they believe in, and it unites generations,” says Natalie Pinon, executive director of Development at National Philanthropic Trust UK , on family philanthropy. “It fosters shared experiences that create opportunities for families to come together for important, heartfelt conversations. Sometimes these moments are inspired by significant life events, such as honouring the memory of a loved one, offering a powerful way to reflect, heal and pay tribute.”
Not only can philanthropy bring family members together to form a shared purpose and goal, it can also teach the younger generation vital and practical financial lessons.
“Involving younger members of the family in the management of the finances and operations of a philanthropic exercise is a valuable experience that can teach them about running a business and the responsibility of having wealth,” Pinon adds.
“Philanthropy is becoming a key part of the succession plan for many families, with the added benefit of it often being very tax efficient,” says Luke Gingell, director, Fiduciary Specialist Team, RBC Wealth Management, Jersey, Channel Islands.
Once you’re set on giving, you need to choose how best to do so in a way that’s aligned with the family’s values. It’s useful to start the process by gathering family members together and discussing why each individual might want give. This could be related to their faith or personal philosophy, a desire to get into philanthropy after a successful career, an aspiration to make the world a better place or a wish to set a good example for the next generation.
“I’ll sit down with the family and just ask them, ‘What’s wrong with the world?’ People are usually quite impassioned,” says Kevin O’Shea, director, Wealth Planning, RBC Private Wealth in the British Isles. “A follow-up question of, ‘What would you do to fix it?’ leads into the discussion about what causes are important to support as a family.”
Conversations about the issues that each individual cares about can then help define the cause or even the specific charity that the family’s philanthropic activities will support.
“Depending on what solution is decided on, it may be possible to create a committee of family members who can come together in a forum and discuss which causes they want to support,” explains Gingell.
A philanthropy mission statement can help align family members as they develop a strategy for finding the right causes and organisations they will donate to.
This approach could include the issue that is to be tackled, the geographical area they want to cover and the timelines for when actions should be taken. Other details might focus on how the money is to be raised, how success will be measured and which organisations will be involved, as well as the roles each family member will take on.
“There are also family charter documents, which are non-legally binding agreements that a family can put together to set out their shared common values and aims, and which can help support them with their decision-making,” says O’Shea.
Your professional advisers can help identify the right vehicle to meet your family’s philanthropic endeavours. A family charitable trust or foundation is one option, although donor-advised funds (DAFs) are becoming increasingly popular.
These financial vehicles enable families to create a giving legacy, with less time and effort spent on administration and compliance. Advisers can help with decisions on budgets, contributions, timelines and other practical considerations. Some families decide to set up multiple DAFs on behalf of different members during their lifetimes.
A DAF can be created almost immediately, while a charitable family trust or foundation can take weeks or months to establish and is more suited for donors wishing to set up operational charities. Both may be eligible for UK tax reliefs.
“A DAF may help if a family wants to just dip their toe in the water with philanthropy, and start making donations without having to set up a foundation, register an independent charity and appoint trustees,” Pinon explains.
Families should weigh the pros and cons of each option but seeking out professional advice is essential. “It very much depends on the client, their circumstances and their objectives,” says O’Shea.
“A DAF is an off-the-shelf solution that’s easy to understand and implement. It can also offer anonymity, if that’s preferred. If the family wants to engage in more public and operational philanthropy or if they want to appoint their own trustees or council members, a charitable trust or foundation may be more appropriate,” Gingell explains.
Once a DAF or family charitable foundation has been set up (or is in the stages of being set up), the next step is figuring out where to invest that capital.
It’s important for families to calculate the returns needed to meet the commitments they’ve made to various charities and organisations. They should also think about the kind of investment that the DAF or other financial vehicle might make. Are the stocks they invest in compatible with the aims of their philanthropic values? Do they complement the philanthropic work rather than conflict with it?
“Some families might want to gift out the income generated on invested funds, in which case they may wish to target high income-generating assets,” explains O’Shea. “Others might look to distribute the funds through regular donations, perhaps over 10 or 20 years. Ultimately, they’re aiming to maximise the amount of money that goes to the charities. Depending on their timescales and objectives, they can opt for a greater emphasis on riskier investments or more fixed income vehicles such as bonds.”
Providing other types of financial support to charities and organisations – beyond donating money – is another giving option. Philanthropy can involve giving out loans, often known as social investment loans, or funding specific one-off projects. Families can also sponsor activities or individuals, or finance a particular position within a charity, in addition to – or instead of – making a regular donation.
Finally, families should think about how they’re going to evaluate their philanthropy. For example: what impact are the contributions having? Is this impact in line with the goals and targets the family set out to achieve? How detailed are these targets and who decides whether or not the family has achieved them?
Reporting and evaluation are particularly helpful as family members aim to continue their giving over the long term. Ensuring that charities have impact reports is essential and bringing in external consultancies to measure benefits can help, but there are other, more tangible, ways of evaluating impacts, says Gingell.
“It can be powerful and inspiring when the members of the family themselves visit places and projects and talk to people that are benefiting from their philanthropy,” he explains.
Coming together as a family to make charitable donations and support good causes has many advantages, for both those doing the giving and the charities they support.
A family’s philanthropic journey is a powerful way to connect generations, instill lasting values and create a meaningful legacy. By thoughtfully aligning charitable giving with shared beliefs, engaging family members in the process, and seeking expert guidance, families can ensure their generosity leaves a lasting, positive impact on the causes they care about, inspiring both current and future generations to continue the cycle of giving.
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