Families who establish charitable foundations, in the interest of incorporating philanthropic goals into the families’ lives, have a much greater likelihood of ensuring that their wealth will be transferred successfully from one generation to the next, and that shared family values will endure, philanthropic experts suggest.
“Philanthropy is a wonderful way of teaching your children to be stewards of their wealth,” says Marvi Ricker, vice president and managing director of philanthropic services with the private banking arm of the Bank of Montreal in Toronto. “[They learn] how to understand the world in which they live, and also have a sense of responsibility for other people in their local community, and in the wider world.”
Establishing a foundation can also help teach children about the principles of good governance, investment and cash management — all while helping to foster a sense of family cohesion.
Most families looking to establish a foundation are best served by using public foundations, which are operated by directors dealing at arm’s length. Wealthier families who are donating a million dollars or more may choose to establish a private foundation, where they would have complete control over its operation, including investment of funds and tax filings, among other aspects.
“It’s a bit better of a tool to teach the kids about investment strategy and good governance because you’re responsible for all that,” says Tim Cestnick, president and CEO of Toronto-based WaterStreet Group Inc.
Whether public or private, however, each foundation should be structured carefully to address a family’s charitable goals, and to be responsive and sensitive to each family’s internal dynamics, philanthropic experts say.
“You can’t just assume that everybody is just going to come together and work well,” says Malcolm Burrows, head of philanthropic advisory services with the private client group of the Bank of Nova Scotia in Toronto. “[Foundations] can be a very powerful tool, if done right, but it’s not a magic wand.”
In establishing a foundation, a family can work with a philanthropic consultant to determine the causes and values that interest each family member, looking for common themes and interests.
“Their interests may appear to be different,” Ricker says. “But there’s usually a thread within them that can be bridged by one mission statement for the foundation.”
The family can then determine an appropriate governance structure for the foundation that will take into account family dynamics and each individual’s interest and desired involvement.
One of the benefits of a foundation is that it provides a structure and some degree of formal process that allows family members to step back from the usual dynamics, and work together on a common initiative. The foundation can become a bonding experience for a family, Ricker says, especially in cases where distance or busy lives normally prevents family members from coming together more regularly.
Parents who are reluctant to establish a foundation because they feel their children wouldn’t be interested in philanthropy, or who believe children should develop philanthropic interests on their own, are missing an opportunity to pass on family values, Cestnick says.
“Families who think this through carefully, families who are fairly generous — and a lot of wealthy families do want to give back — those kind of families, smart families, understand that values are something you can foster and transfer to the next generation,” Cestnick says. “To say, ‘I’ll let my kids worry about their own giving’, is sort of like saying, ‘I’ll let my kids figure out their own money management.’ Why wouldn’t you want to transfer some of those values, some of that knowledge, to them? It’s a poor excuse.”
This is the third article in a three-part series on charitable giving.