Posted on: August 1st, 2017
For a growing number of successful business owners, there’s a strong urge to “pay it forward” by financially supporting causes and organizations that are near and dear to their hearts. Many of you already make regular and sizable charitable contributions. And we know from our research that one key reason top entrepreneurs like you want to become even wealthier is to help other people increase their own success and advance in the world.
FACT: More than 70 percent of successful business owners who want to be seriously wealthy are tremendously charitably inclined. By amassing greater wealth, they see themselves as being able to do more.
But have you gotten your family involved in philanthropy? If not, you could be missing a truly massive opportunity to teach your children and other loved ones about smart financial decision-making and impart key financial values that can guide them throughout their lives.
If you’re like most of today’s successful business owners, you’re what we call a Family Steward. That means your deepest financial concerns are focused on taking care of your family and ensuring they enjoy lives that are financially stable and financially responsible.
Family philanthropy is one great way to fulfill your Family Steward role. The benefits of engaging family in charitable giving include:
TIP: To decide how best to involve family members, consider factors such as their ages, levels of maturity and independence, and interests. You might involve younger children only peripherally, and expand their roles and influence over the family giving as they grow (and if their interest in it grows with them).
One tool that can both maximize your charitable giving options and engage family in philanthropy at a deep level is a private family foundation.
A private foundation is a not-for-profit organization (i.e., charity) that’s primarily funded by a person, a family or a corporation. The assets in a private foundation produce income. That income is used to support the operation of the private foundation and, most important, make charitable grants to other nonprofit organizations.
While there are certainly costs associated with creating and managing a private foundation, there are distinct benefits of doing so. Three of the most pronounced—often interconnected—reasons why family offices often go the private foundation route include:
IMPORTANT: Setting up a private foundation can be an intricate and involved process, as can the ongoing management of your private foundation. In this regard, running a private foundation is very much like running a business. Detailed accounting and the filing of tax returns are required. A variety of experts, such as legal and accounting professionals, are usually needed to handle regulatory and compliance matters. If you’re overseeing the assets of the private foundation, investment professionals will regularly be engaged.
To see why private foundations are especially compelling to wealthier families who are philanthropically inclined, consider the fundamental ways they differ from another, more commonly used charitable giving tool—the donor-advised fund—in the following key areas:
A private foundation enables you to make a wider array of grants than does a donor-advised fund. With a private foundation, for example, you can make pledge agreements to support one or more charitable causes over a period of time. The lack of personal control in a donor-advised fund makes that impossible. Private foundations also can make grants to specific individuals, something a donor-advised fund cannot accomplish.
How the assets are managed also differs between the two. With a donor-advised fund, the assets are managed by the firm you entrusted with your money—often a mutual fund sponsor or similar investment firm, or a community foundation. In a private foundation, you—or the investment advisors you select—get to manage the assets as you see fit.
BOTTOM LINE: Private foundations can be much more creative than donor-advised funds in how they manage the endowment and how they give.
BONUS: With a private foundation, you can decide who sits on the governing board and how the funds are spent. In contrast, a board selected by the sponsoring organization governs the donor-advised fund.
UPSHOT: If you’re motivated to have your charitable giving live on after you—including permitting your descendants to take the reins—private foundations tend to be the more effective choice.
Contact your legal or financial professional to discuss your options for addressing your charitable goals.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
© Copyright 2021 by AES Nation, LLC. All rights reserved.
No part of this publication may be reproduced or retransmitted in any form or by any means, includ- ing, but not limited to, electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorneys’ fees.
This publication should not be utilized as a substitute for professional advice in specific situations. If legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. Neither the authors nor the publisher may be held liable in any way for any interpretation or use of the information in this publication.
The authors will make recommendations for solutions for you to explore that are not our own. Any recommendation is always based on the authors’ research and experience.
The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and authors can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof.
Unless otherwise noted, the source for all data cited regarding financial advisors in this report is CEG Worldwide, LLC. The source for all data cited regarding business owners and other professionals is AES Nation, LLC.
