A lasting legacy?

Is it better to give away your wealth while you can or create structures to ensure philanthropic activity continues long after your own passing?

Is it better to give away your wealth while you can or create structures to ensure.......

In KPMG’s white paper, Disruptive Philanthropists, where we explored the views and opinions of philanthropists from all over the world, this very issue was raised time and again.

In very broad terms, we found that philanthropists who created their wealth have a greater inclination to distribute it to philanthropic causes within their lifetime. For those fortunate enough to inherit wealth, there is a sense of greater responsibility to see philanthropic activity continue along future generations.

Of course, there is no right or wrong approach; both have merits and both can leave a legacy that will stand the test of time. Both will also need governance structures to help ensure philanthropic activity achieves its desired impact.

Philanthropists who seek to make sizable donations in their lifetime often find the choice of charity or institution limited – very few organizations have the ability to accept a multi-million dollar donation and smaller grassroots charities may not have the capacity to manage such a donation. It is common for philanthropists to start by making smaller gifts to individual charities and then increase their giving once trust is established.

The challenge is to ensure any sizeable donation will truly make a difference. As KPMG’s report suggests, modern philanthropists want to enable giving that can be measured and evaluated, which can be better achieved with a clearly defined strategy and governance framework.

Family first

Whatever the approach, it is important that philanthropists talk to and involve family members. To avoid costly disputes and contested wills, philanthropists should discuss and explain their wishes with close relatives, share their vision, and explore how they might be part of the philanthropic journey. A journey shared with family can enhance bonds. It is not uncommon for individual family members to be given a donation allocation, which can be combined to support common interests for a greater impact.

To avoid costly disputes and contested wills, philanthropists should discuss and explain their wishes with close relatives, share their vision, and explore how they might be part of the philanthropic journey.

Family discussions will typically explore the motivations and ambitions behind philanthropic activity, any history of charitable giving, the family’s philanthropic values, and what individuals and families hope to achieve. The aim is to align family values with a strategy for giving.

It is also vitally important to speak to the individual charities where legacies are to be left. Charities, particularly smaller or grassroots organizations, need time to prepare for that legacy. Discussions will enable a charity to best use that gift to the greatest effect over many years.

The same principle applies to the creation of a foundation. In many jurisdictions, foundations must have a stated aim and make regular donations in support of it. To help ensure such a foundation can stand the test of time, its directors should be flexible.

Flexibility in a foundation structure allows family members to share, explore, and demonstrate their values in many different and personal ways for a legacy.

Flexibility is also important to family members. The report points to many philanthropists using foundations to involve family members, enabling them to explore and support issues that are important to them, and can be a tool to teach financial literacy to a younger generation. Flexibility in a foundation structure allows family members to share, explore, and demonstrate their values in many different and personal ways for a legacy.

Donor-advised funds

Distributing wealth within a lifetime or creating and managing a foundation can create a significant administrative and often unwelcome burden. Many philanthropists are turning to donor-advised funds.

As the name suggests, donor-advised funds allow individuals or families to continue to influence and direct philanthropic activity in a way where the administrative burden and any regulatory issues are removed and managed by a sponsoring organization (such as a financial institution or community foundation). They also offer the additional benefit of anonymity, something many philanthropists value. They are also good for creating a legacy over many years, if not decades.

Yet they are not without criticism. As with private foundations, the capital in donor-advised funds remains inactive. There are growing voices who call on that capital to be spent and directed towards the causes they support. One such way is the activation of capital for impact investing, which is an investment strategy that seeks both financial returns and social/environmental returns.

Conclusion

It should be remembered that philanthropists are increasingly addressing some of the largest issues facing the world today. These are issues that have not been created overnight and will likely take decades, or perhaps longer, to address. While we can all work towards a future where people and the planet prosper, the need for long-term funding is essential. Thanks to philanthropists who leave a legacy today and tomorrow, we are closer to achieving a more sustainable world to benefit future generations.