38 LONGISLANDPRESS.COM • DECEMBER 2021
Binding the Family Ties for
Future Generations
In my industry there is an old quip that suggests most family wealth
goes from “shirtsleeves to shirt sleeves in 3 generations”. The first
generation makes the family’s fortune, the second builds upon it but also
spends somewhat irresponsibly, and by the third generation, in thanks
to more irresponsible spending than their parents and less building,
they are back to working again (think rolling up shirt sleeves). How
can families interrupt this wealth degradation scenario?
When families have a stated mission to give back – with serious,
intentional, mindful philanthropy – it has been shown that these
families build their wealth along side their charitable giving. So, they
give more away and yet they build more wealth? Yes, because they
are aligned as a family to make an impact and build a legacy. It is
this mission alignment and value alignment that makes an outsized
impact on the family’s long-term wealth.
To get started, the first step is simply to start early and be serious
about the giving your family is doing. Among increasingly popular
charitable investment vehicles are Donor Advised Funds (or DAFs).
A DAF is an irrevocable gift to a public charity (the fund) and is
set up in the name of the donor. For example, it might be “The
Adam and Ana Jones Family Fund”. The fund is run through
another organization that serves as the “back-office” for these
donations. Contributing to a DAF during a high-income year is a
great opportunity to both maximize your philanthropic efforts and
charitable tax benefits.
A DAF allows you to start small and encounter far less of the red
tape that comes with private foundations. Furthermore, a DAF is
private in so much that your DAF’s grants to nonprofits are not
known (unless you announce it) whereas in a private foundation
all grants are publicly reported. A DAF also does not mandate a
certain cadence with respect to grants. In fact, the capital continues
to grow tax free (though it is no longer yours) until you and your
family decide which nonprofits you would like to support.
What can a DAF do for you?
Through a DAF the donor not only achieves tax savings but also
initiates a charitable legacy:
• The donor has the freedom of making grants to charities of their
choosing and at the time of their choosing.
• The donor will incur no capital gains tax on gifts of appreciated
securities provided that they held them longer than one year.
• Their donor advised fund will not be subject to estate taxes.
• The investments in a DAF can appreciate tax-free. Often, the
donor’s financial advisor can still manage the charitable assets.
• If the donor is subject to alternative minimum tax (AMT), their
contribution into a DAF will reduce their AMT impact.
A Donor Advised Fund makes philanthropic giving easy-one
simply asks the fund to distribute a portion of their fund to any
approved (and they often have databases that list nonprofits
to ensure complete compliance of the IRS code) nonprofit. So,
imagine your family gathered around the dining room table a
few times a year to decide together where the Fund should be
distributed. This goes back to the idea of building a charitable
legacy. You and your family can work together to decide what
causes are better than others. Which organizations seem
better suited given their reach and depth as opposed to other
less established ones. Or maybe the grassroots organizations,
given that they are operating with less resources, could use the
donation more. These are the same types of questions that would
be discussed at any philanthropic group’s grant making meeting.
The difference here is that it does not need to be cut in stone.
That is, it might change from time to time as the grantor’s (your)
philanthropic interests change.
The bottom line is that Donor Advised Funds are good in many
instances where a donor wants a simplified philanthropic vehicle.
One where they can request a donation be sent from the fund at
any time (although, as stated above, these requests do not have to
be adhered to by the DAF). It is a great way for a philanthropically
minded family to start building their legacy. Family retreats and
holiday gatherings are a great time to discuss your families giving,
volunteering, and values. These types of interactions develop a
family’s legacy and builds lasting ties through a shared philanthropic
mission. One that is more likely to flourish than those without a
stated philanthropic/value mission.
ALINE Wealth is a group of investment professionals reqistered
with Hightower Securities, LLC, member FINRA and SIPC, and
with Hightower Advisors, LLC, a registered investment advisor with
the SEC. Securities are offered through Hightower Securities, LLC;
advisory services are offered through Hightower Advisors, LLC.
Source: Michael Kitces, www.kitces.com
/www.kitces.com
/LONGISLANDPRESS.COM
/www.kitces.com
