The Importance of Giving in Creating a Family’s Culture

I was asked to speak recently before a group of development directors for a large nonprofit seeking ways to connect with their donor base. Often there is a life event that causes an individual or family to reflect on the tax benefits to charitable giving. Sometimes a civic event or a general sense of community creates a connection that touches the family. This was all well understood by this sophisticated group. Where I could help was highlighting ways they may engage with a wealthy family new to the giving process. I explained how it may help those seeking support for a cause to understand how professionals help families think about their wealth legacy.

While too often ignored or relegated to a lessor important status, wealth legacy is critically dependent on the family culture of communication.?

Most families might tell you the key to family generational wealth is to make the best investments, pay the least in income taxes, create a sophisticated estate plan, and hire the best advisors. They will talk of economic and political risks. Inflation. After all, most wealth creation starts with running a business or being a senior executive in a business, investing assets, optimizing the reduction of taxes, and managing cash flow. But these are not the most important aspect to sustaining and growing wealth. Leading with those factors results in tactical planning and not strategic planning to sustain or grow wealth.

?The role of communication:

Evidence shows, the real culprit to dissipating family wealth is lack of communication with family members and failure to establish a family culture. When Wilmington Trust did a study several years ago, less than 7% of the families surveyed perceived risk in family dynamics and communication as problems for them to address.?Yet those same studies showed that over 60% of the time that is exactly the risk they faced.

Most business people are used to using intellect and discipline to create wealth. So, when they think about passing that wealth to the next gen, they seek to do more of the same. They miss two key components:

• educating and preparing the family on how to govern so they are good stewards of their family wealth, and
• ?creating a culture that understands the role of giving in building and sustaining wealth. ??

?Family roles:

There are many ways to address the communication issue and often you don’t start with the mission and values. First, you establish a healthy family governance. Identify the strengths that family members bring to the table. It is like establishing committees on a board so you can talk about mission and values. What skills does a family member bring to the family and how will that fit into the governance of wealth?

Those interested in the finances, the numbers people, naturally gravitate to what is an acceptable ROI, asset allocation, fee structure etc. But there are other important skills in a family. There is the historian; those who care about traditions and keeping those traditions as part of the family dynamics. There are the project managers who get the right people at the table with the right information. There are those skilled in communications; they make sure everyone who came to Thanksgiving dinner is still talking after. ?

?You may assign roles in creating a family retreat with one goal: ?Understand what is important to the family, the strength of family members, and how you will communicate together. Is sustaining the wealth for future generations important? Is creating a legacy important? Does the family see philanthropy an important part to achieving both future generational wealth and a legacy? Is there a family purpose?

Start with meaning not money:

I had a client once who when we talked about tax planning twice a year, we would talk about donation of appreciated assets and how smart it was to give money to his DAF to save taxes. He would then chirp, ‘do you have any other ideas that doesn’t include me giving away my wealth?’

I realized then I was approaching this incorrectly. If we wanted to involve his children in sustaining and growing the family wealth, let’s start with philanthropy.

We asked the patriarch and matriarch about the virtues and values they believed contributed to their family’s wealth. We discussed working hard; being frugal; hiring trusted advisors and listening to ‘the experts’; paying attention to the details; being part of the community; understanding the importance of the arts in their lives; etc. From this we found a natural paths to what was important to the family- education, arts, social issues, etc. In one family, they identified all that I just mentioned but then realized that not all family members handled the pressure of wealth the same. The conversation pivoted quickly to psychological health and wellness.

We then brought the children- let’s call them Next Gen - together and asked them about their personal virtues and values and how they saw that complimenting or at odds with the family’s virtues and values. Rather than discussing investment options, we discussed their role in the community as individuals and a family. We asked how the family could be a part of what was important to them.

As you might expect, there are many ways to have this discussion and there are agendas that help you get there. But the discussion about family wealth started with meaning, not money. That discussion has more resiliency than one that starts with how wealthy are we. Leading with giving, takes the discussion beyond the desk in front of each family member. It forces eyes on others and away from the natural selfishness that talking about wealth can breed.

Let me give you another example: In one family, we talked about giving back to ‘the community’ as an important core value to the family. We started with meaning. The family created a three- year time horizon for giving to ‘a cause.’ We set up a specific annually donation the family would sponsor. We made the amount beyond what one child could personally support. ?

Now each Next Gen had to make their case- Shark Tank style-to their siblings and other family members of why their ideas were best and how they were consistent to their family and personal ethos.

We chose three years so whatever we did could be impactful. Annually, the Next Gen whose plan was chosen had to report back on its successes and the impact their support had.

In year three, another set of plans were presented, chosen, and this continued. Along the way, family members sat in on investment performance reports, tax planning meetings, even estate planning and depending on their age, business planning. They became educated in the fundamentals of wealth management and met the advisory team working with the family.

Over the first 6 or 7 years, the family slowly agreed on the issues they wanted ??to address. And they started to understand the mechanics of wealth as they created together their family culture of Philanthropy. They learned to communicate with one another.

Conclusion:

• So, the steps? Start by understanding the skills within a family. Overlay that with the values and virtues that created the family and still resonate today. Identify the legacy they wish to leave and how philanthropy fits in. With your help, they now can design a program that works for them.?