When it comes time to give away the wealth you’ve worked hard to create, chances are you’ll want to maximize the impact of your dollars on the causes you care about most. A great place to start is developing a charitable giving plan that includes a well-thought-out tax strategy. But what about amplifying your impact in a way that enables your values to live on for generations?
That’s where family giving comes in. The goal of family giving is to foster a charitable giving mindset in the next generation with the intent of inspiring a family tradition of charitable giving. Moreover, family giving has the potential to bring your loved ones closer together by being focused on a shared goal.
Start by talking about charitable giving
The first step to creating a tradition of family giving is simple: make a concerted effort to be open with your kids about your charitable efforts. Because charitable giving is (at least partially) a topic of personal finance, you may be reluctant to share too much about your donations. But it doesn’t have to be that way. Whether your kids are adults, adolescents or even toddlers, it’s never too early to start a family conversation about giving. You just need to tailor the conversation accordingly. Ultimately, your openness can create opportunities to share your perspective with — and instill your values in — your kids. It can also open the door for them to participate in your charitable giving endeavors and help pass it down to future generations.
Engaging the next generation in charitable giving
Based on your children’s age and other factors (like their level of independence, professional skills and expertise, and personal interests) you can — and should — tailor your approach to their involvement. In the end, you may elect to involve your family in every aspect of your charitable giving plan from mission statement development all the way through check writing, or you may identify key opportunities for their involvement along the way.
Here are three ideas you can use to help engage your children (of any age) in family giving.
- Family volunteerism
Sometimes you might feel like you have more money than time, but it’s important to remember that giving your time and talent to charity is impactful. In fact, it can be even more impactful when it comes to creating a multigenerational tradition of giving. Families incorporate volunteerism into their charitable giving plans in different ways. For example, some families may volunteer together at a soup kitchen every Thanksgiving, while others might have one family member select a different volunteering activity each quarter. Regardless of how you approach it, hands-on experience can prove to be a highly formative experience for the whole family. And, the best part is, it can help bring your family closer together.
- A giving allowance
Giving allowances are another great tool to get your children involved in giving. And while families will implement the concept differently, the idea is simply to allocate each of your children a dollar amount on an annual (or other regular) basis and empower them to decide how the funds are distributed to charities. Some families incorporate this concept into a tradition of giving on each person’s birthday or making charitable gifts during the holidays. Whether you have young kids or adult children that have yet to build their own wealth, a giving allowance can be a way of enabling your children to start thinking more seriously about charitable giving. And, depending on each of your children’s unique circumstances (age, independence level, etc.), a giving allowance can create the opportunity to identify causes they care about, vet charities through research and find unique ways to maximize the impact of their gifts. All these skills will be valuable to them when they one day become the stewards of your legacy.
- Involvement in your charitable giving plan
To go beyond family volunteering and implementing a giving allowance, you can involve your kids fully (or partially) in your charitable giving plan. If you don’t have a charitable giving plan already, consider involving you kids directly in its creation. Or, if you already have one, bring them in the loop on the plan and offer them the opportunity to influence it. Ways to engage your kids can include anything from involving them in the development of your family’s charitable mission statement, asking them to pitch new charities or causes for the family to support, vetting specific charities, visiting or volunteering at charities under consideration, or even including them in final decision-making regarding family donations.
Incorporate donor-advised funds or a private foundation in your charitable giving plan
When looking specifically to foster an intergenerational tradition of family giving, there is a good chance that the use of donor-advised funds and/or a private foundation will help support your goals. Both donor-advised funds and private foundations are tax-efficient multigenerational giving tools that also afford you the opportunity to educate the next generation on charitable giving and leave a charitable giving vehicle for them to direct in the future as part of your legacy planning.
Leveraging donor-advised funds
When it comes to donor-advised funds, you can get your older kids involved by appointing them as grantors on the account. You can also involve them in advising on the investment of the donor-advised fund’s assets. These tactics can be complementary to the aforementioned ideas, for example by designating a portion of the fund as their giving allowance and empowering them to take ownership of how and when it is donated.
Donor-advised funds can also function as a mechanism of establishing a charitable giving legacy for your family. Upon your death, the fund disposition plan can include naming successor advisor or advisors, which could be your children. Doing so enables you to pass down the tradition of charitable giving in a tangible way and involving them in your donor-advised fund while you are still alive will help prepare them to take it over after your death.
An alternative to donor-advised funds: the private foundation
Private foundations are designed for the very purpose of involving your kids in your charitable endeavors. While private foundations are generally more expensive and complicated to setup and administer than donor-advised funds, if you have the means, a private foundation offers the opportunity for your older children to get hands-on involvement. For example, children can be appointed to the foundation’s board or support day-to-day foundation operations. All these opportunities can serve as a means of educating the next generation on strategic charitable giving and instilling your values for generations to come.
As it relates to legacy making, private foundations are generally designed with the intent of operating across multiple generations. So, like donor-advised funds, this too is a very tangible means of passing down your tradition of charitable giving.
Your financial advisor can help foster intergenerational charitable giving
The best way to foster a charitable giving mindset in your family’s next generation depends on the unique needs and dynamics within your family. Whether you want to start simple by just talking about your charitable giving with your kids, or you’re ready to go all-in on a multi-pronged strategy to engage the next generation, it’s great opportunity to lean on the expertise of your financial advisor. From brainstorming ideas together and facilitating family charitable giving discussions to helping you setup donor-advised funds or a private foundation, your financial advisor is ready to help.
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This publication is not intended as legal or tax advice. Northwestern Mutual and its Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.