by suzanne mcgee | May 23, 2014 | Lifestyle
Giving money away isn’t as easy as it sounds, particularly when different generations are involved. Here, philanthropists, advisers, and wealth managers tell how to minimize familial differences and make charitable gifting a smooth sail.
Kennedy Consciousness: The late Robert F. Kennedy with his wife, Ethel, and seven of their then eight children at an outing at the Bronx Zoo in 1964
Howard Graham Buffett has no idea how old he was when he first became aware that something called “philanthropy” existed. While his father, financier Warren Buffett, “was busy making money” and building his reputation as the sage of Omaha, his mother, Susan Thompson Buffett, spent “a huge amount of her time engaged in something that helped or supported other people.” As they grew, Howard, as well as his elder sister, Susie, and younger brother, Peter, were caught up in these projects. “It started with giving away time,” Howard Buffett, 59 years old, recalls. “A big part of my education was seeing my mom act on [her] beliefs, not just talk about them.”
The lessons he learned included an awareness of what distinguishes effective philanthropy from simply sitting down at the end of every year to write a few checks or buying a table for a friend’s charitable gala. By the time he was an adult, Buffett says he realized philanthropy, at its best, “is about listening to people and trying to understand their core needs and find a way to address them.”
Creating that kind of philanthropic savvy in children and grandchildren is increasingly a focus of today’s affluent families. “It’s a way for any family to test and articulate their shared values, to define what their family stands for, and to put those values into action,” says Peter Karoff, founder of The Philanthropic Initiative, a consulting firm that advises donors on making the leap from supporting a handful of favored organizations—an alma mater, a local hospital, a regional arts group—to developing a coherent giving approach. “The aim is to create a legacy and, for many—if not most—having that legacy includes impact,” says Karoff.
The Grand Foyer at the Kennedy Center in Washington, DC
What triggers philanthropic engagement can be as varied as the families involved. “In some cases, an aging benefactor has decided he wants to see his philanthropic gifts fully dispersed while he’s still living; sometimes it’s a personal experience or event, such as a trip by two members of one family to Ghana, which then became a focus of their philanthropy,” says Susan Ditkoff, a partner at Bridgespan, a nonprofit advisory group, and co-head of the firm’s philanthropy practice.
One element of “next gen” philanthropy that may startle some older parents or grandparents is their heirs’ preference for and sometimes insistence upon high-impact or transformative giving. Today’s younger donors have relatively little interest in seeing their names immortalized on hospital wings, theater auditoriums, or college lecture halls. They define “community” in a very different way, as something that isn’t confined to a narrow geographic area or a particular religious or ethnic grouping. They’re also more likely to tackle ambitious programs. Bill and Melinda Gates, who have publicly declared their resolve to eradicate endemic diseases such as polio and malaria within their lifetimes, are the poster children for this approach. What distinguishes the Gateses, of course, is the magnitude of their ability to give; the eagerness to take on formidable challenges does not. In the past, donors were willing to spend the 5 percent of a foundation’s assets that the law requires them to distribute each year to make lives better. Now, says Sharna Goldseker, managing director of 21/64, which specializes in helping families involve “next generation” members in their philanthropic planning, “the attitude is, ‘That’s great, but wouldn’t it be even better if, by spending 50 percent, we could eradicate the problem entirely?’”
US businessman Ronald Lauder cuts the ribbon at the opening of a sheltered playground in the Israeli city of Sderot in 2009
What is increasingly common, however, is the focus of parents or grandparents at the head of the family—typically those who still control the wealth—to make philanthropy a family affair. Crafting a personal approach to giving and simply handing heirs a family foundation to administer isn’t enough these days. Goldseker explains, “It isn’t possible just to bring those individuals into the status quo. [Heirs] bring their own ideas and visions to the table.”
Long before they are old enough to understand just how wealthy their family is or what philanthropy involves, children or grandchildren can develop an understanding of their privileged situation by becoming engaged in volunteer work, through a school, a religious organization, or some kind of entity alongside their parents. “A grandparent or parent can say they’ll donate money that’s equivalent to the amount of time they put in, too,” says Melissa Berman, president and CEO of the New York– based Rockefeller Philanthropy Advisors, who notes that family vacations or extended family reunions can also include a volunteer initiative that all family members can share: a park cleanup, perhaps, or, as children get older, a Habitat for Humanity building project.
Lauder Legacy of Giving: A 1979 portrait of the Lauder family, taken at the New York home of Joseph and Esteé Lauder
But introducing children to the concept and reality of family philanthropy at a very young age does not mean they’ll follow where their elders lead as they get older. “It’s important to be open with heirs about what is coming down the pike,” says Brian Wodar, a senior vice president and director of wealth management research at AllianceBernstein. “If parents aren’t willing to go beyond a certain area when it comes to making grants, then they should make that clear to their children and grandchildren. If they don’t want to be flexible in terms of how that wealth is spent, and they still want to have the next generations involved, they have to find some kind of compromise.”
Bridgespan’s Ditkoff explains that since the first generation tends to be the one who made the wealth, “they feel that they earned it, and it’s theirs to give away in whatever way they choose.” Sometimes, there are gulfs that can’t be bridged. Perhaps one family member is an evangelical Christian and can’t support the giving priorities of his parents and siblings; perhaps one part of a traditionally Republican family drifts leftward and can’t condone giving money to causes that run counter to his new opinions. “To say that family philanthropy is a panacea that can bridge all gaps is a fallacy,” says Karoff. “A baby won’t fix a bad marriage; philanthropy won’t make a dysfunctional family functional once more.”
Gillian Howell, the national Philanthropic Solutions group executive at US Trust, says it’s best to start preparing both sides to make compromises as early as possible. “One of the most memorable events I witnessed involved a wealthy family, who began an annual series of New England vacation weekends focused on philanthropy by asking the youngest members of the family the question of how they would like to change the world,” she recalls. The patriarch and matriarch were so moved by what they heard that they were very open to the idea of changing the governance and even ultimately diluting or reshaping the mission of the foundation they had created so they could incorporate their young heirs’ insights and vision.
Tisch Family Philanthropy: Preston (LEFT, CROUCHING) and Laurence Tisch place a time capsule in the foundation of the future Tisch Hall at NYU in 1969
While parents and grandparents may fear that large gaps exist between the generations—and underestimate the extent to which they need to compromise to fully engage their heirs—when push comes to shove, there’s far more alignment than family elders may assume. A 2013 Merrill Lynch survey showed that 73 percent of the “millennial” generation—those aged roughly between 18 and 35—had values similar to their parents, even though they might express those values differently. “That reflects the reality that values are shaped by what people are exposed to; that’s what children model and internalize and express later in life,” says Michael Liersch, Merrill Lynch’s head of behavioral finance.
A growing number of younger donors plan on “giving while living”—an attitude that often separates wealth creators from their heirs. That’s the case for Howard Buffett and his foundation, which was seeded with gifts from his parents and in recent years has been supplemented by significantly larger donations of Berkshire Hathaway stock. Buffett’s philanthropic focus is worldwide food and water security and conflict mitigation, and by mid-March, he says, he’ll have visited all 54 of the fully recognized African nations in search of innovative agricultural projects to support. “I want to transfer the knowledge and sense of commitment to my children,” which includes his wife’s four daughters, whom Buffett has helped raise, along with his son, Howard Warren Buffett. At the same time, he adds, “I don’t want that to stop me from doing the biggest things that I can today. I’m going to put all my time and resources into addressing these issues.”
A 2004 portrait of Jimmy, Bob, Jonathan, and Andrew Tisch
Buffett said his son had visited 58 countries by the time he went to college—and “our destinations weren’t places like Paris and Cancún.” Three of the children now sit on the board of Buffett’s foundation, and trustees are designated $20,000 apiece every year to direct to projects of their own choice that fit within the broader mission of the foundation.
Taking a flexible strategy with the legal and financial components of philanthropic giving is as essential as when dealing with generational differences. For decades the family foundation has been the default-giving vehicle. While foundations allow a family unlimited, multigenerational control over grant making, the tax deductions for contributions are less generous than for other vehicles, such as donor-advised funds. (For instance, if donating company stock, family members can deduct its cost; if they are donating to a donor-advised fund, they can deduct the often significantly higher fair market value of those securities.) By some estimates, 70 percent of all foundations have assets of less than $1 million, a level that most experts consider to be inefficient. Michael Cole, president of Ascent Private Capital Management, says that while a foundation—which requires its members to keep tabs of investments, governance, and taxes as well as evaluating and monitoring grants—can be “a great financial parenting and educational tool,” unless a family has or plans to donate more than $10 million to the foundation, the administrative costs are too high to justify this option.
One of The Howard G. Buffett Foundation’s initiatives is to assist Afghan farmers and improve agribusiness in the impoverished country. Here, Howard W. and Howard G. Buffett in Afghanistan
The other most popular vehicle is the donor-advised fund, established under the umbrella of sponsoring organizations, such as community foundations. In recent years a range of nonprofits and special divisions of banks and investment companies like Fidelity have offered opportunities for families to establish their own DAFs. However, there are more constraints: Donors can only suggest or advise, rather than dictate, where they want grants to go; and children who serve as advisors cannot earn a salary for doing so. But for a growing number of families, the lower overhead costs, higher tax deductions, and the increasing ability to bring in children or grandchildren as “co-advisors” are outweighing some of the disadvantages.
While families might want to ponder the tax considerations associated with various philanthropic vehicles, the decision about whether or not to be philanthropic is almost never made for financial reasons. “The tax breaks you get for charitable giving are no greater than those you get for losing money in the stock market, and nobody invests in stocks with the intent of losing money,” points out Ramsay Slugg, wealth strategies advisor at US Trust.
For Howard Buffett, the biggest challenge for philanthropists isn’t whether to set up a foundation or DAF. “The worst thing you can do is to live in your comfort zone,” he says. In the late 1980s, Buffett and his siblings were each allowed to determine the targets of $100,000 per year for their family’s foundation. In 1999 each kid received $26.5 million from their parents to start individual foundations. “Many of my ideas were stupid,” Buffett admits, recalling the notion of funding a camel dairy for Western Sahara refugees. “You learn fast to think hard about what to support, but at least the mistakes were small, while the lessons were big.” Nonetheless he encourages his children to venture into new areas. “I can be a bit of a dictator, but I know that it’s important for the next generation to challenge me, to have someone with a view that’s a little less myopic ask me tough questions. These are the formative experiences that they’ll be putting in their memory banks and drawing on in the decades to come.”
photography by arnold newman/getty images (lauders); david Buimovitch/getty images (Ribbon cutting); myloupe/universal images group/getty images (wharton); daniel c. britt/the washington post/getty images (kennedy center); marvi lacar/getty images for BWR (shriver); ap photo (kennedy); paul hawthorne/getty images (tisch school of the arts); ben baker/redux (Tisches); bettmann/corbis (time capsule); monica almeida/the new york times/redux (schwarzenegger); courtesy of eric crowley (buffetts)