Guiding the next generation toward the noble practice of charitable giving is a commendable goal for a fortunate family. However, executing this aspiration often encounters challenges. To put it in perspective, even well-intentioned plans can falter, as the words of the Scottish Bard Robbie Burns remind us.
Achieving this goal is possible but not as easy as it might seem. What should be helpful can turn problematic. Let's first talk about the issues and then the solutions.
The foundation is a well-off family—say, business owners—wishing to make philanthropic contributions. They have the option of making lump-sum donations, which is straightforward but not always optimal. Imagine a boa constrictor attempting to swallow a Shetland Pony instead of a smaller calf.
An alternative approach could involve establishing a donor-advised fund, appointing successor donors, or even creating a full-fledged foundation. They provide an initial lump sum, which, under the careful management of Nicola Wealth, generates sustainable income for perpetuity. This may involve initiatives like scholarships bearing the family's name, thereby contributing to their lasting legacy—a positive outcome.
There can, however, be various challenges that arise, and good counsel is crucial. Here are five issues related to giving across generations.
1. Engaging the Next Generation: The challenge emerges when one generation expects the next to dedicate their time and effort to a cause they didn't participate in creating. The pitfall here is formulating a strategy and then merely tasking the second generation with implementation.
In one case, the first generation set up a foundation, but the second generation had no interest in distributing the funds. They saw it as another obligation from an estranged parent, and they did not care much for the causes the money was going to. However, they did want to contribute to the causes they believed in. Unfortunately, that idea was rejected.
2. Differing Perspectives on Giving: In certain cases, the second generation might question the idea of an endowment. They may inquire, "Why not distribute all the funds immediately? People are in dire need now. Why wait for $5 annually? Let's give $100 right away."
3. Shifting Priorities: Sometimes, the causes and organizations that one generation valued might not resonate with the next. A simple example is a difference in opinions about climate change. The next generation might care more about different issues.
4. Estate Management Disagreements: For instance, one generation leaves $1 million to each of their two kids and $8 million to charities. Sounds great, right? Well, not so fast. The kids might see that as "our money" going to charities and take legal action.
5. Changing Charitable Intent: A paradoxical situation might unfold when, for example, one generation passes away and leaves $4 million to each of their two kids and $2 million to charities, the second generation might decide, "We don't really need this money, and it's not ours. Let's give it all to charities." But would the first generation be happy with that? Or would they think their grandkids are being shortchanged?
So, we've highlighted five issues where what's meant to be helpful might end up causing problems. What's the solution? As with many matters involving estate planning and wealth, clear communication is key. If the older generation solely dictates without dialogue, it might be wiser to exclude the next generation entirely and make direct donations.
A more effective strategy involves fostering open dialogues and collaboration among generations. While this might prove challenging for the older generation who earned the wealth, involving the next generation, respecting their viewpoints, and recognizing them as stewards of the family's legacy is essential for harmonious collaboration. Identifying causes that resonate with both generations and agreeing on the quantum and timing of donations are paramount.
So, banish the Scottish bard to the highlands and do proper planning and communicating, and your family legacy will be a positive one to the benefit of many worthy causes. Instead of causing trouble, it will be a source of good.
This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information presented here has been obtained from sources believed to be reliable, but not guaranteed. All investments contain risk and may lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. This is not a sales solicitation. This investment is intended for tax residents of Canada who are accredited investors. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. Nicola Wealth Management Ltd. (Nicola Wealth) is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required securities commissions.
