5 Pitfalls That Can Trip Up Your Family's Charitable Giving

An extended family walk together on the beach.

(Image credit: Getty Images)

While the spirit of giving may bring many families closer together, philanthropy is not without its challenges. Recognizing these pitfalls at the outset can help mitigate them substantially.

As I guide wealthy families in their planning, these are the five most common patterns we avoid to set them up for success in philanthropy:

1. Trying to place family members on the same philanthropy timetable.

Philanthropy remains a lifelong journey that can deepen and evolve over time. It may rise and fall as a priority during various life stages, such as while establishing a career or business, raising a family or completing an academic degree. Indeed, philanthropy may peak as an interest for senior generation members much later in life. In developing a family philanthropy culture, it helps to provide open invitations of involvement, whether through volunteering together, inviting grant ideas or generally learning more about each family member’s interest areas.

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Formal involvement in a family foundation or charitable fund may emerge at different times for different family members. Until then, expressing the gratification that charitable giving can provide may set a framework for future participation.

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

Families represent a rich pool of talent, experiences and perspectives. Having diverse points of view can broaden a family’s knowledge base and impact. Mindsets can also evolve from a local to national and/or global orientation. What’s more important than what a family chooses to support is understanding why they are pursuing philanthropy collectively.

Reasons can range from spending time together, to learning from one another, to reinforcing values, to helping those in need and improving communities. Whatever the reason, families benefit from keeping the long-term purpose of family philanthropy in mind and focusing on the values they have in common.

For instance, family members may prioritize innovation, empowerment and integrity in their lives. Charitable activity that exemplifies these values can transcend political and regional differences, while allowing for each member to express differing political viewpoints in their respective individual giving.

3. Avoiding the process of creating ground rules.

Families may assume that they don’t need to establish any “rules of the road” in giving together, especially if all members get along. However, when it comes to family philanthropy, process is your friend. Agreeing upon certain ground rules in advance helps streamline decision-making and grounds those decisions in clear protocols rather than personal feelings or family dynamics.

Addressing the following questions first can help the family focus their efforts and set expectations among members in suggesting grants:

Why. What’s the reason for expending 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 live and/or keep a certain amount in perpetuity for future generations to donate? If we do leave a philanthropy legacy, would we want any part spent down within a certain amount of time?
Where. Where do we want to direct our philanthropic efforts? Do we focus on our local community, national organizations and/or those operating abroad? What would be the deciding factors in defining our geographic footprint?
What. Which problems do we want to help solve? If we could fast-forward 10 years into the future, what positive change would we like to support through our philanthropy?
How. How do we identify and vet our charities? What standard criteria and process can we agree on for approving a grant we make together? What will we be doing together and apart in our charitable giving?

4. Waiting for the 'perfect' grant opportunity.

In asking for grant suggestions from their children, parents may have unspoken high expectations on the level of due diligence and visible impact of the proposed donation. Children in turn may not want to disappoint their parents in making a less-than-optimal grant suggestion. 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 fact, philanthropy serves as society’s risk capital to addressing problems that business and government may not have the bandwidth to experiment on.

While some basic due diligence can provide some initial information, it may not guarantee against unforeseen challenges. Therefore, sharing both positive and disappointing donation experiences can educate the whole family in making a meaningful impact.

5. Donating without a centralized vehicle.

In any given year, families may support a variety of causes in different amounts. It’s often a challenge to keep track of how much each member has given and to which charities. In addition, the task of supporting multiple charities through separate transactions, and gathering multiple tax receipts, may also drain valuable time out of a busy day. A donor-advised fund (DAF) serves as a single tax-free charitable account to support multiple charities and also track your giving, thus providing you an easy and convenient method of charitable giving.

We find DAFs are especially popular as families gather during the holiday season and are thinking about both giving and tax planning.

While good intentions provide a wonderful start, it’s far too easy to get tripped up with something as complex and sensitive as philanthropy. Awareness of these common pitfalls can help a family get out ahead of them and have a smoother path along their philanthropic journey.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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As Head of Philanthropy & Family Governance Advisory, NB Private Wealth, a division of Neuberger Berman, Julia guides family members in proactively navigating their future and philanthropic journey together. Common topics covered with significant families include wealth communication and disclosure, succession planning and post-liquidity governance in determining a new common framework for the family and its wealth. Julia has lectured widely in the areas of philanthropy and family governance, with her perspective featured in The New York Times, Forbes, the Financial Times and Barron’s. Julia has authored articles for Trusts and Estates magazine and the Leimberg Estate Planning Newsletter and regularly speaks on charitable giving.