Hi, thank you for tuning in to today's Emerald Gem, which stands for Get Educated in Minutes. I'm Alexa Broida, Family Legacy Advisor for Wilmington Trust Emerald Family Office and Advisory and your host for today's podcast. In today's GEM, I'm going to answer the question, how can I use charitable giving to engage my family in my estate planning process?
Estate planning can be complex and many people want to do everything they can to ensure both their assets and their heirs are successful. We've seen time and time again that one of the best ways to set your estate plan up for success is to engage your entire family in the process as early as possible, maintain open and ongoing communication, and maximize transparency.
While this can sound good in theory, a lot of people are hesitant and even a little bit nervous about actually going about it. There are often many questions about when the right time is to bring the conversation up, how it should go, who should be involved, and what exactly should be shared. One entry point that is grounded in your family values and accessible to all ages is charity.
Beyond just impacting the causes you care about, your philanthropy is a valuable tool to prepare your heirs and your estate in engaging ways that foster open dialogue, shared experiences, and ongoing success. So today we're going to talk about four ways to get started: number one, instilling gratitude in the values of giving back; number two, introducing the wealth conversation with the next generation; number three, working to maximize potential tax advantages; and number four, teaching financial literacy and responsibility. First, talking about gratitude and giving back. It' s said that values are caught, not taught. So demonstrating and modeling giving back starts to set the tone and the family culture for that type of behavior that children can pick up on.
At the same time, we don't necessarily want to assume that children will take exactly what we intend to pass on. So we want to make sure we're supplementing it with age appropriate conversations and intentional structure around family charity, and there are a few natural entry points to do this. When children begin to gain awareness of the privileges that they have compared to others, we can begin to name and articulate this to them, frame it as a reason to be grateful and share the responsibility to engage in volunteering as a whole family. There are kids' charitable groups and giving circles, which allow young children to connect with peers their own age, who are having these same types of conversations. As they get older, there are more opportunities for open dialogue, facilitating their philanthropic passions and continuing community engagement.
When children develop natural interests, anything can have a component of charity that goes along with it. For example, if they're interested in animals, you can talk about animal shelters. If they're interested in trees, you can speak about the environment. Even if they're interested in trash trucks, you can talk about waste management.
As you talk to them and indulge those interests, you can include charity as a part of that conversation and talk about how to get involved with and learn about the things that they already care about. As they get older, the things they're interested in can become more complex and nuanced components of philanthropy and they can deeply engage in communities in new and exciting ways.
Children are also often aware of personal experiences within their family or close friends. You can openly discuss the challenges your own families are facing or have overcome, such as immigration stories or health challenges. And talk about extending support to other people going through the same thing. Particularly if your family is already charitable in these issues, such as supporting certain hospitals, universities or disaster relief, children can be involved early and often, and as they get older, you can even start to give them responsibility to take the lead on researching innovations and other non profits to donate to. The second way to leverage charitable giving is to use it to introduce the concept of family wealth. We often hear that adults are hesitant to discuss wealth and finances with their children out of fear of the impact that knowing about their wealth is going to have on them, and they also may simply not know where or when to begin.
But when the groundwork of family values and the awareness of financial privilege has already been laid through those discussions of gratitude and beginning to get involved with charity, it can tend to be easier to make that transition into discussing more of the family wealth story. If charitable giving is part of your wealth and estate plan, it fits into the overall picture of your family planning and budgeting.
As children get older, you can include them in conversations around how you decide how much to give relative to the rest of your financial capital and how you go about determining your philanthropic capacity over time. This can segue very nicely into a much broader conversation about the systems your family has set up to manage the wealth that you have.
You can discuss charitable trusts and vehicles that are in place to ensure family philanthropy can continue, which helps to begin to introduce them to the concept of other forms of wealth that will be inherited, and things you've considered on their behalf, such as retirement, healthcare, homeownership, and the ways that your family is set up to cover all of them.
The third entry point is to discuss charitable tax advantages. There are many ways to leverage charity to help reduce your tax liability, whether you're giving while living, planning to give at your passing, or a combination of both, since almost any asset can be used in some way for charitable purposes, both by donating during your life, leaving to a charity as a bequest, or even a split interest where you retain partial ownership of the asset.
This is often a great way to mitigate tax liability while handling assets that your heirs may not want or be prepared for. This does, though, impact what they can expect in your estate plan and is important to bring up. Discussing the various assets and vehicles you've set up with your heirs within the context of your family's ongoing philanthropic legacy also helpfully introduces them to your broader estate, what they can expect, and how their inheritance is going to intersect with your charitable legacy.
Since various charitable strategies are useful at different points of your life, depending on your tax liability at any given year, you should be having ongoing conversations with your tax and financial advisors about your giving. This is a great way to begin to include family members in all of these meetings, which introduces them to their advisory team, and not only gives them insight into your thought process and long term charitable intent, but also the technical components of your planned giving and its impact on your broader wealth and estate plan.
The final way that we're going to talk about leveraging charitable giving to engage your family in the estate planning process is through using it to teach financial literacy, education, and responsibility. Tax and technical strategies are only as useful in the long term as the heirs are knowledgeable and prepared to sustain them.
And charity provides a lower risk, but important way to teach children about various topics. For instance, budgeting and financial priorities. If they have a set amount of money designated for giving, how do they determine who to prioritize? It can teach them about saving. As they begin to get an allowance or earn money from summer jobs, you can discuss dividing it into spend, save, and give categories.
It can even help introduce the concept of investing and principle versus interest. If children give away all of their money now, there's nothing left, but if it's invested, it can continue to grow and they can give into the future. You can use charity to speak about loans and debt, since microfinancing and other forms of non traditional philanthropy can be interesting and engaging ways to meet multiple goals at the same time.
You can speak about responsible spending, where you would teach children how to ask questions about how the money is going to be used by a charity, and where it goes, which also introduces concepts of healthcare, retirement, and other human needs, by explaining what these things are and why other people might need charitable support in order to meet those needs, even if your family doesn't.
So in closing, we believe engaged families are more likely to succeed and preserve wealth for future generations, and charitable giving is a great inroad to these conversations. When you're building skills around financial engagement and the estate planning process by using charity to engage with various tax strategies, teach financial literacy, introduce family wealth, and instill the values of giving back, your family will have a perspective on wealth that is rooted in your core values and supported with strong financial skills.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about how to use charitable giving to engage your family in your estate planning process. We'll be glad to help you. See you next time.
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