How do we teach our children to be charitable? I have learned much about how to accomplish this objective from my clients.
In the July edition of Primetime, I wrote about the benefits of a Charitable Remainder Trust, a trust that allows an individual to create an income stream for life, avoid capital gain tax, receive an immediate income tax deduction and accomplish charitable objectives that normally would occur after death. Here, I would like to illustrate another benefit to this arrangement: the ability to name your Family Foundation as the charitable beneficiary. And even if you do not want to establish a Charitable Remainder Trust today, you may want to explore the benefits and advantages of a Family Foundation.
A Family Foundation is a private charitable organization that distributes at least 5% of the value of its assets annually to operating or public charities (although there are exceptions to this rule.) There is a misconception, however, that you need millions of dollars to start a Family Foundation. I work with many families who start a Family Foundation with One hundred thousand ($100,000.00) dollars and less.
The person who creates a Family Foundation cannot receive compensation for running the Foundation, but compensation can be paid to that person's descendants, as long as they are active in running the Foundation. More important, however, is your ability to instill the act of charitable giving in your family.
Deciding which charities should receive distributions from the Family Foundation allows families to pass on their charitable perspectives and creates a forum for family members to work together.
One family I work with divides the charitable payout among each of the children's families. Each family determines which charities will receive their share and the children, who now manage the foundation, make sure that each distribution is made. They comment to me how enjoyable it is to learn what charities their siblings support and how each family arrived at their decisions. It brings all of the families closer together as they now have a shared mission.
Another family I work with decides together which charity will receive the benefit that year, because they feel it makes a bigger impact. This strategy requires discussion and compromise among the family members, but it brings the family closer together by each person sharing his or her perspective on why a charity should be selected. The decision making process becomes an annual event that brings siblings and cousins together.
Another family's approach is to give each family member a certain amount that they may direct. This family has younger members who often delight the elder generation by selecting charities that they know their grandmother (the person who created and funded their Family Foundation) would have chosen as a way to honor her memory. What a wonderful legacy she leaves for both her family and charities.
As with most endeavors in life, we succeed at those where we have a chance to learn and practice. In my work with families and their Foundations, I see families discussing difficult, but important subjects. I see the pride that older family members have for younger members and the respect that younger members have for their elders. I see families grapple with the practical aspects of learning to run their Family Foundation and the skills that come with these lessons. I see families come together in a shared objective to do good things.
With family members living all over the country, a Family Foundation creates a charitable legacy and preserves family bonds.
