Giving as a family
The family office is likely to play a central role in the family’s philanthropic activities, whatever the mission, scale or scope.1 For example, foundation administration is a routine task commonly assigned to the family office that covers tasks such as record keeping, legal compliance and tax reporting. Increasingly, though, family members are taking a hands-on approach to philanthropy and are actively involved in setting philanthropic strategy and policy as well as giving gifts and assessing their impact and effectiveness. These donors want to see where their money is going as well as what it is achieving.
The more active a family becomes, the more will be expected of the family office to support the family’s charitable endeavors. Moreover, wealthy families look to their philanthropic activities as a means to be remembered by family members and the community. Helping nurture and build that legacy will be another important job for the family office.
For those families who are mostly passive with their giving, they can outsource a number of solutions to manage their grant-making, such as community foundations, commercial donor-advised funds (DAFs) and philanthropic advisory firms. For those who wish to develop their own philanthropic mission and manage the functions in-house, focusing on philanthropy as a business is an effective strategy.
Getting started with philanthropy
While each wealthy family is different, most that give philanthropically will follow a set of traditional steps for deciding what, where and to whom to give their charitable donations or grants. The following sections describe those steps as a suggested practice.
Articulating a philanthropy mission statement
Just as a family would put thought into any gift they give, it’s important to think through how, what and where they might give philanthropically. By discussing the family’s vision for change and shared values, family members can determine the areas or causes on which they wish to focus their giving. A philanthropy mission statement describes this focus and can be used to direct giving in the years to come. A straightforward way to approach the creation of a philanthropy mission statement is to find the right balance among the following elements:
- What the family cares about and most wants to change
- The causes to which the family or family office is already giving
- What the community or region of focus needs
Setting guidelines for giving
Giving guidelines are an extension of a philanthropy mission statement. They are a lens through which to decide what will be funded and what will not. For example, some countries offer tax advantages for donating to tax-exempt nonprofits, in which case families may want to direct their giving towards these types of organizations. Other families may wish to limit their giving to one particular geographic area—perhaps a country, city or town they grew up in.
As part of internal giving guidelines, a family might decide what percentage to allocate to strategic (also called “impact”) giving, what percentage to allocate to legacy giving (the family’s history of giving) and what percentage to allocate to more fluid, ad hoc giving, such as disaster relief, emergency funds or family members’ discretionary gifts.
Researching opportunities and organizations
Once the family knows what it wants to accomplish, the next step is searching for others who can bring the vision and mission to life. This involves locating organizations and projects that are doing the work that the family wants to achieve. At this stage, it can be helpful to consult an adviser who can educate the family and help determine the needs and gaps.
Supporting family philanthropy
Family office professionals can support the family’s philanthropy in a number of ways. Typically, these services fall into four broad categories related to the philanthropic journey: planning, family governance, implementing and assessing impact. The following describes the activities that typically fall into these categories.
- Introducing philanthropy into wealth management conversations
- Exploring the family’s motivations and objectives for giving
- Helping individuals and families narrow down and designate a chosen area of giving
- Researching the needs in that issue area or community
- Bringing in an adviser or expert to explore the chosen issue area
- Making contacts with other donors funding locally or by issue area
- Providing resources on philanthropy
- Setting up networking opportunities with peers
- Finding out what tax advantages are available
- Helping the family articulate their vision, values and mission for philanthropy and process for making decisions
- Helping the family office principals write or record their donating intent during their lives
- Facilitating discussions for how to get the family involved
- Helping set preemptive policies to mitigate unproductive family dynamics
- Educating the current or next generation on philanthropy
- Setting up giving vehicles
- Identifying causes, charities, organizations and projects to support
- Conducting due diligence on those organizations, including site visits
- Managing and overseeing donation and grant agreements
- Reviewing and advising on current giving portfolio
- Requesting reports from recipient organizations
- Monitoring donations and financial reports
- Surveying grant partners and community members to evaluate results
- Determining the social return on investment
This is not an exhaustive list, nor is it meant to imply that family offices should engage in all of these activities. Rather, it’s a starting place to support the family’s needs regarding philanthropy at any point along the way. Family offices might offer a range of these services, either in-house or via third parties.
This material is an excerpt from The Family Office, A Comprehensive Guide for Advisers, Practitioners, and Students. Now available where books are sold.
Adapted from The Family Office by William I. Woodson and Edward V. Marshall. Copyright © 2021 Rybat Advisors, LLC. Used by arrangement with the Publisher. All rights reserved.
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