5 Pitfalls That Can Hurdle Your Family's Charity

While the spirit of giving can bring many families closer together, philanthropy also has its challenges. Recognizing these pitfalls from the start can help minimize them significantly.

As I guide wealthy families through their planning, these are the five most common patterns we avoid to help them succeed in philanthropy:

Philanthropy remains a lifelong journey that can deepen and evolve over time. It can ebb and flow as a priority during different stages of life, such as starting a career or business, raising a family, or completing a graduate degree. Indeed, philanthropy can peak as an interest for members of the senior generation much later in life. In developing a family philanthropy culture, it helps to offer open invitations to get involved, whether it’s volunteering together, soliciting grant ideas, or generally learning more about each family member’s areas of interest.

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Formal involvement in a family foundation or charitable trust may come at different times for different family members. Until then, expressing the satisfaction that charitable giving can provide can provide a framework for future participation.

2. Assuming you all care (or should care) about the same thing.

Families represent a rich pool of talent, experiences, and perspectives. Having diverse viewpoints can broaden a family’s knowledge base and impact. Mindsets can also evolve from a local to a national and/or global orientation. What is more important than What a family chooses to support is understanding Why They work together to promote philanthropy.

Reasons can range from spending time together, learning from each other, reinforcing values, helping those in need, and improving communities. Whatever the reason, families benefit from keeping the long-term goal of family philanthropy in mind and focusing on the values they share.

For example, family members may prioritize innovation, empowerment, and integrity in their lives. Charitable activities that exemplify these values can transcend political and regional differences, while allowing each member to express different political views in their respective individual giving.

3. Avoiding the process of creating ground rules.

Families may assume that they don’t need to establish “rules of the road” to give together, especially if everyone gets along. But when it comes to family philanthropy, process is your friend. Agreeing on some ground rules up front helps streamline decision-making and base those decisions on clear protocols rather than personal feelings or family dynamics.

By first answering the following questions, you as a family can focus your efforts and set expectations among family members when proposing grants:

Why. What is the purpose of our charitable efforts? What does success look like for our family and philanthropy?
WHO. Which family members would be involved in our family’s philanthropic giving? Would we include in-laws? Under what conditions would we include children and grandchildren?
When. When do we want to donate our charitable funds? Do we give while we are alive and/or do we hold a certain amount in perpetuity for future generations to donate? If we are leaving a philanthropic legacy, do we want a portion to be used up within a certain time frame?
Where. Where do we want to focus our philanthropic efforts? Do we focus on our local community, national organizations, and/or organizations that operate abroad? What would be the deciding factors in defining our geographic footprint?
What. What problems do we want to help solve? If we could fast forward 10 years into the future, what positive change would we want to support with our philanthropy?
How. How do we identify and screen our charities? What standard criteria and processes can we agree on for approving a grant we make together? What will we do together and separately in our charitable giving?

4. Waiting for the ‘perfect’ grant opportunity.

When soliciting grant proposals from their children, parents may have unspoken high expectations about the level of due diligence and visible impact of the proposed donation. Children, in turn, may not want to disappoint their parents by submitting a less than optimal grant proposal. The beauty of philanthropy is that, unlike other endeavors with little or no margin for error, it can foster new solutions or approaches with learning along the way. In effect, philanthropy serves as society’s venture capital to tackle problems that corporations and governments may not have the bandwidth to experiment with.

While some basic due diligence can provide some initial information, it is no guarantee against unforeseen challenges. That’s why sharing both positive and disappointing donation experiences can teach the entire family how to make a meaningful impact.

5. Donating without a central vehicle.

In any given year, families may support multiple charities in varying amounts. It can be challenging to keep track of how much each member has given and to which charities. Additionally, the task of supporting multiple charities through separate transactions and collecting multiple tax receipts can also take valuable time out of a busy day. A donor-advised fund (DAF) acts as a single tax-free charitable account to support multiple charities and also track your donations, providing an easy and convenient method of charitable giving.

We find that DAFs are especially popular as families get together during the holidays and think about both gifting and tax planning.

While good intentions are a great start, it’s far too easy to fall into traps when it comes to something as complex and sensitive as philanthropy. Being aware of these common pitfalls can help a family avoid them and have a smoother path on their philanthropic journey.

This article was written by and presents the views of our contributing advisor, not the Kiplinger editorial team. You can view the advisors’ dossiers using the SEC or with FINRA.

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