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Using your family legacy to make a difference

Nov 16, 2022 | RBC Wealth Management


Giving money to charity; supporting causes you care about; making a positive name for your family in the community—there’s a lot of work that goes into developing a solid philanthropic giving plan, especially if the plan concerns your entire family.

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Insights into responsible investing - issue 9 cover

Your family has a passion for giving back to your community. You may want to support your center of worship and its missions, the local educational system, animal shelters or all three, but struggle with managing the philanthropic goals of each member of your family against the many requests that continuously come in.

There are two traditional options families use to help simplify the process of creating a charitable giving plan: private foundations and (in the U.S.) donor-advised funds.

Private foundation

Many families look to developing a private foundation to create the family charity. Private foundations allow your family the freedom to make decisions about the foundation’s design, administration and investment management.

They do provide your family with control over your philanthropic endeavors and may help with tax relief; however, private foundations tend to have higher expenses to create and operate and may be time-consuming to manage. Foundations also have a minimum 5% annual distribution requirement.

For families that have an interest in responsible investing portfolios, investments in a private foundation may be able to be included in environmental, social and governance (ESG) funds. However, private foundations have an excise tax on gains made in not-approved funds. It will be important to work with your advisor to confirm your private foundation accomplishes your ESG investing goals without causing additional excise taxes.

Donor-advised funds in the U.S.

This charitable-giving vehicle may offer better immediate tax advantages. Donor-advised funds (DAFs) have a parent organization your family donates money to, and the organization provides administration and investment oversight of the fund.

Families can create the fund with a one-time contribution and make additional contributions as wanted. When the family is ready to use the fund to make charitable donations, you only need to contact the parent organization about the timing and amount to be donated. DAFs are an income tax deduction in the year the contribution is made, and your family has the freedom to decide when charitable donations are made, and to what organizations.

Plus, some DAFs have the advantage of providing your family with dual benefits—investing your charitable donation in funds that support the causes your family cares about and then supporting charities of your choice with the fund money.

Support causes that are close to your heart

With wealth comes opportunity and responsibility. As your wealth grows, so does the potential impact of your wealth, giving you the ability to support the people, institutions and causes that matter to you.

Effective giving involves making informed choices, being confident that your gift will make a difference, and confirming that your donation is an efficient use of your money and time and has the impact you desire. Global investors with a responsible investing focus can contribute to the organizations and causes closest to their hearts to invest in a world they want to live in.

End of the year planning

End-of-year planning is an important time for global investors. It may be a good time to revisit past conversations or establish new philanthropic family goals. If you are interested in philanthropic and charitable giving strategies, work with your advisor to learn how you can incorporate elements of responsible investing strategies into your portfolio or into a family trust. When incorporating these strategies into a family trust, it is important to consider who the inheritors are, how they will receive it and how to engage them in the process.

Different generations are often driven by varying motivations, yet every generation is stepping up in its unique way to make much-needed contributions. Involving children and grandchildren in philanthropy is an act of love and a way to pass on a family’s values and legacy across generations. Giving together can unite your family across the years, geography and life circumstances. 

Setting up a charitable giving plan

For some families, making decisions on what organizations to support—and how much to support them with—may come with difficulty.

To help with this, it’s important for your family to develop an annual charitable giving plan all members agree upon. Work with your advisor to help determine how much is available based on your overall wealth plan for donating to your foundation or DAF annually, and then have a family meeting to negotiate what organizations receive money, and how much. It may also be a good idea to reach out to said organizations and ask about their recommended timing for receiving the donation. For example, a food bank may need help in the winter or spring seasons not in the summer or fall months because of food donations from gardeners in the community.

It’s recommended to review the plan annually with family members to confirm opinions haven’t changed—and the charity missions your family supports still match your family values.

With an annual plan and establishing a charitable distribution option like a private foundation or DAF, it may be much easier for your family to accomplish your annual philanthropy goals. In addition, you can enjoy your family legacy now.


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