What Is Family Philanthropy and How Does It Work?
Discover how families collaborate to create lasting social impact through strategic charitable giving and shared values.
Family philanthropy involves a collaborative approach where multiple family members engage in charitable giving and social impact initiatives. This type of giving often stems from shared values and a collective desire to create a lasting legacy for future generations.
Understanding Family Philanthropy
Family philanthropy encompasses a wide range of structures and approaches, all centered around a family unit’s collective engagement in charitable activities. The term “family” can extend beyond immediate relatives to include multi-generational households. Philanthropy in this context involves the strategic allocation of financial resources, personal time, and specialized expertise to address various societal issues.
Motivations for engaging in family philanthropy include instilling values in younger generations, fostering family unity through shared purpose, and perpetuating a commitment to specific causes. This differs from individual giving, which lacks a multi-generational or collective strategy. Corporate giving is driven by business objectives, rather than the intrinsic family values that characterize family philanthropy.
Structures for Family Philanthropy
Families can engage in charitable giving through various formal and informal mechanisms. Informal direct giving involves making donations to charitable organizations without establishing a separate legal entity. This straightforward approach allows families to contribute directly to causes they support.
Another flexible option is a donor-advised fund (DAF), which operates as a charitable giving account established by a donor at a sponsoring organization, such as a community foundation or a financial institution’s charitable arm. Donors make irrevocable contributions of cash or appreciated assets to the DAF, receiving an immediate income tax deduction. For cash contributions, donors may deduct up to 60% of their adjusted gross income (AGI), while for appreciated assets, the deduction can be up to 30% of AGI. Any excess deductions can be carried forward for up to five tax years.
The sponsoring organization maintains legal control over the assets, while the donor retains advisory privileges to recommend grants to qualified public charities. DAFs typically involve administrative fees.
Private foundations represent a more structured approach, established as separate legal entities, typically tax-exempt under Internal Revenue Code Section 501(c)(3). These entities are often governed by a board that includes family members, providing significant control over investment and grantmaking decisions.
Private foundations are subject to specific Internal Revenue Service (IRS) regulations, including an annual payout requirement. They must generally distribute at least 5% of the average market value of their net investment assets each year for charitable purposes to avoid penalties. This distribution includes grants to qualified organizations and certain administrative expenses. Private foundations are also subject to an excise tax on their net investment income.
A supporting organization is closely tied to a public charity, providing support to one or more specific public charities. Like private foundations, they offer a degree of control, but their operations are more integrated with the supported public charity.
Operating Family Philanthropy
Operating family philanthropy involves managing internal dynamics and ensuring the longevity of charitable efforts. A foundational step includes identifying shared philanthropic goals and developing mission statements that reflect the family’s collective aspirations.
Involving different generations of family members in decision-making processes is a common practice. This engagement can range from participation in grant recommendations to serving on governing boards, fostering a sense of ownership and continuity. Establishing clear roles and responsibilities within the family’s giving initiatives helps streamline operations and prevents potential conflicts.
Consistent communication among family members regarding philanthropic objectives, strategies, and allocation decisions is important for maintaining alignment and resolving disagreements. Planning for continuity helps secure the family’s vision and ensures its enduring impact.