Philanthropy can be a crucial building block for generous donors seeking to create multigenerational wealth within their family. Engaging in collective philanthropic actions can have many benefits: from enhancing family leadership and governance, to defining a family’s long-term identity through creating purposeful family legacies.
When done strategically, family philanthropy can be a cornerstone to establishing a legacy of generous donors. A thorough understanding of how wealthy families engage in collective philanthropy is helpful for nonprofit organizations to secure longevity in their major gifts pipeline.
Enhancing family leadership and governance
Philanthropic endeavors provide significant insight into a family’s dynamic by providing family members with a platform to learn about their own interests, passions, skills and preferences within the family context. Some members might be visionaries, networkers or organizers, while others are researchers, evaluators or case promoters. Philanthropy draws on all of these skills.
Family foundations, charitable trusts, or donor-advised funds (DAFs) can therefore be great precursors to practicing family governance, serving as a relatively “neutral” ground for exercising family interactions and learning about each other. They allow an opportunity for better mutual understanding: how to deal with challenging family relations, manage conflicting viewpoints or how to make room for collective decision-making.
For older generations, philanthropy provides a meaningful venue to stay involved in family matters by helping younger generations build their identity and prepare to fully participate in family decision-making. All of these elements support family integration and cohesion by aligning a family through a common cause that becomes a source of pride.
Strengthening family identity
Aside from facilitating governance, family philanthropy is a great tool for synchronizing values across generations. According to many seasoned wealth planning experts, families too often focus on technical aspects of the process, such as tax planning, portfolio management and estate planning, when building a wealth continuity strategy. Yet, “the best planning occurs when the family anchors itself in knowing the purpose and goals for their wealth. These are questions less about managing a portfolio’s value than about cultivating and preserving the family values.”
Values are an important part of family identity since they act as guiding principles in difficult situations. Family philanthropy taps perfectly into these evolving values, which guide wealth decision-making.
Philanthropic engagement also allows the elder generation to share family history, beliefs and basic principles, thereby passing on family values from one generation to another. At the same time, it provides an opportunity to incorporate the NextGen’s perspective — to hear their voices, allow them to challenge existing organizational systems and confront the family with new ideas or technological solutions.
It is this multigenerational interaction that ensures family continuity – anchoring the family identity in the past while orienting it to the future.