This will part 1 of a 5 part series of articles on incorporating philanthropy into your lifestyle bringing with it a real sense of purpose.
One of the great challenges faced by high net worth families in general and business owners specifically is raising motivated, thoughtful, and productive children. Within three generations most families go from rags to riches to rags again. It may be counter-intuitive, but many of the families that overcome this challenge and preserve their wealth for multiple generations do so by giving some of it away. Planned philanthropy and a robust private foundation are critical tools used by high-net-worth families who successfully transfer both their values and their sense of purpose to the next generation.
Philanthropy can take many forms. Donating one’s labor, joining a board of directors, or simply making a donation to a worthy cause are all included under this umbrella. It is all too easy, however, for a family to donate a great deal of money and energy to charity without actually advancing their goals or the causes they support. High net worth families and business owners are bombarded with charitable requests, and making small donations to everyone who asks often leaves donors with no sense of purpose or fulfillment. I have seen a new client’s tax return show tens and sometimes hundreds of thousands of dollars in charitable giving, yet they still cannot explain which causes are truly important to them. Sometimes a client will have a broad category of causes they support, like the environment, human rights or cancer research. However, even with such overarching themes, a shotgun approach to giving never seems to accomplish anything except an ever-growing list of charities seeking money.
High net worth families benefit most tax-wise from philanthropy, and they achieve the most good when their efforts are coordinated and systematic. This statement is readily understood by business owners. A charitable mission statement is (like a business plan in the for-profit arena) the first step in bringing order to the chaos of charitable giving. First and foremost, the mission statement gives the family an opportunity to decide which causes they want to support. In my experience it is best to start by asking the question, “If you could change anything about the world, what would it be?” That question usually leads to the cause, not the charity, to which the family wants to devote its time, energy and money. There may be more than one cause.
Once the cause is agreed upon, the family can then move forward with creating an action plan, which allows a family to decide exactly what it is going to do to start changing the world. If the family is not committed to and motivated by the cause they have selected, then they have not found the right cause. A family with resources and commitment can accomplish a great deal with a proper action plan, but the resources also can be wasted if they are unfocused. For example, if the family wants to fight global warming, will they do so by supporting energy efficiency, renewable energy, reforestation programs, limiting population growth, or some other approach? Maybe they will move forward on more than one of these fronts, but it would be very difficult to effectively support all of them at the same time.
In Part II of this series, we’ll focus more directly on the practical steps to initiating a philanthropic plan.