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While some clients decide when they are younger that they want to make significant contributions to charity during their lifetimes or at death, many come to this realization later in life when they are retired and feel financially secure.

Advisors can play a crucial role by helping them to determine:

  • How much they can give.
  • When they can donate.
  • Which assets they should contribute and from which sources.
  • If retirement assets should be passed down to heirs or donated to charity.
  • Whether they should donate assets directly to charities or establish a charitable vehicle such as a donor-advised fund (DAF), private foundation or charitable trust.
  • If a previously established charitable vehicle should be continued, terminated, or converted, such as changing a private foundation to a DAF.

When clients have sold their businesses or retired from successful careers, they often reflect on the legacy they have established or whether they can still create a meaningful one. Others may still be working but contemplate what they will do when they have the time to become more philanthropic and create a charitable legacy.

Clients often believe they will leave a legacy of being a successful business owner, caring parent, spouse, child, or loyal friend to many, but some aspire to be remembered for their generosity or support of charities or the community. For those seeking to create a charitable legacy, there are many items to consider.

They should determine whether they want to be public or private in their support of charities during lifetime or at the time of their death. They can magnify their impact by encouraging friends and family to support their favorite causes, although not everyone may be comfortable with being an advocate or fundraiser.

Engage Family Members in Charitable Decisions

Most people with wealth determine at some point how much they want to give or leave to children and grandchildren. Some who may not want to give too much to their heirs may wish to donate assets to the family’s DAF or foundation so they are put to good use during their lifetimes, at death, and beyond. Engaging heirs in philanthropic decisions and activities often fosters family unity and allows them to continue to honor their parents’ charitable legacy after their passing.

Initiating charitable planning with children before it’s too late can yield benefits in the future. When parents communicate their intention to give or leave money to charity, it enables everyone to plan accordingly. Conversely, heirs who are unaware of such plans until after their parents’ passing may feel disappointed and upset. This outcome can be avoided by having the discussion beforehand, allowing the next generation to participate in charitable decisions.

Parents and heirs may not always agree on the causes and charities they wish to support, but it is important to engage in discussions and respect these differences. There are ways to minimize or overcome these challenges. For instance, when a family has a private foundation, they may establish complementary donor-advised funds for their children so they can give to causes outside of the foundation’s mission.

The next generation may not be interested in taking on the administrative burden of managing the foundation. As a result, the foundation can be terminated and the assets granted to charities or to various DAFs established for the heirs.

Unfortunately, sometimes parents determine that the philanthropic differences with their children or grandchildren are irreconcilable. As a result, they can develop a disposition plan for the assets of the foundation or DAF that excludes other family members from participating in these decisions. This approach may be the only way they can ensure that their assets go to the charities they support at death, in perpetuity, or for a limited number of years after death. While these heirs may not honor the charitable legacy that their parents left, it is reassuring to know that many others will.

Another Option: A Charitable Plan for a Business

Business owners who plan to pass their businesses down to the next generation or to key employees might explore the option of establishing a charitable plan for their businesses. Funding a corporate DAF or foundation can help create a charitable legacy for the business owner. This approach often occurs when business owners want to ensure that the company continues to support the local communities that have contributed to the company’s success over the years. Some companies choose to support national and international charities through a DAF.

Many business owners establish company giving plans that allow employees to recommend charities for the business to support. Typically, a business establishes a charitable mission that gives them and the employees some direction so they are not recommending charities that are controversial or off-mission.

The DAF creator identifies who will continue to serve as the donor-advisor once they are no longer alive. If the business closes, the donor-advisor would recommend closing grants to various charities. Some business owners set up their own personal DAF, recommending several grants each year and crediting the business for the grant.

For Donors Without Children

An increasing number of wealthy clients have no  children or heirs, and advisors can help them plan what to do with their wealth. Engaging in these discussions can reassure a client that they have proactively planned to make a meaningful impact in the event of unforeseen circumstances.

At my organization, the American Endowment Foundation, a growing number of donors without children have been setting up DAFs. They often distribute the balance in their accounts to charities at their death instead of passing them down to their heirs. Others name nieces, nephews, or siblings as the successor donor-advisor so the DAF accounts continue after their passing.

Those who give to charity during their lifetime can experience the joy of giving, see the impact of their generosity, and receive recognition (if desired) from the charities they support. For others, it may be more suitable to provide funding  later in life or upon their passing. Regardless of when the giving takes place, advisors can help clients create a charitable legacy.

Ken Nopar is the Director of Philanthropic Practice Management for the American Endowment Foundation, one of the nation’s leading independent donor-advised fund sponsors since 1993 with $7 billion in assets under advisement.