How can I use philanthropy to prepare my heirs and set my estate plan up for success?
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 philanthropy to prepare my heirs and set my estate plan up for success?
Estate planning is the process of designating what will happen to your assets at your passing, and is important to help ensure your wealth and legacy live on. In addition to the technical strategies of estate planning, a critical component of a successful estate plan is preparing your heirs to receive an inheritance. We've seen time and time again that this includes communicating transparently in an age appropriate way about your assets and planning.
For many people, this can feel counterintuitive, perhaps out of fear that children will lose motivation and drive if they're aware of a future inheritance or simply a hesitation over when and how to bring the conversation up. Unfortunately, that lack of transparency can leave. Heirs unprepared to receive and responsibly steward their inheritance, putting the family's legacy at greater risk.
You can bridge this gap and help both wealth creators and heirs benefit by imparting your family values and skills in wealth and financial literacy early and often. One great way to do this that we're going to discuss today is through philanthropy. Philanthropy can offer strategies for staying grounded, learning financial responsibility, and building a strong support system with one another.
Beyond just impacting the causes you care about. Your philanthropic giving can be a valuable tool to prepare your heirs and your estate in engaging ways that foster open dialogue, shared experiences, and successful family wealth stewardship.
So today we're going to talk about three ways to get started. Number one, instilling gratitude in the value of giving back. Number two, teaching wealth and financial literacy. And number three, building cohesion and unity among the family.
First talking about gratitude as a natural one as it comes up organically with younger children and the ways in which the family engages with both giving time and money can evolve as they grow. When the family routine includes giving of time and talent through volunteering or other forms of engagement, it often naturally evolves into conversations about financial support, which is a great entry point to discussing the family's financial resources in a way that is straightforward, but rooted in gratitude and being grounded.
One of the best ways to begin the conversation at an early age is to start with their natural interests and connect it to something charitable. 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.
It gives you a chance to learn about the things they already care about, and then you can talk about ways to get involved through volunteering. As they get older, the things they're interested in become more complex and they can dive deeper into the nuance of philanthropic causes.
Another entry point is through discussion of challenges your own family and friends 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 efforts, children can be involved early and often and take on more leadership and responsibility as they get older.
In addition to discussions you have as a family, there are outside resources such as kids, teen and young adult charitable groups and giving circles, which facilitate connection with peers their own age, who are having these same types of conversations and receive support and education from others within that philanthropic framework.
The second way to leverage charitable giving is to use it to introduce the concepts of basic financial literacy and family wealth stewardship. Engaging your family in your estate plan will generally include discussing the various strategies and mechanics that you're using, and typically those are only as useful in the long term as the heirs are knowledgeable and prepared to sustain them. Charity may provide a low risk. But important way to teach children age appropriate financial literacy, which can help set them up for success when discussing estate planning strategies as they get older. All within the framework of your family's values.
This includes the basics of budgeting and setting 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 also even help to introduce the concept of investing and principle versus interest. If children give away all their money now, there's nothing left. But if it's invested, it can continue to grow and they can give into the future.
If charitable giving is part of your wealth and estate plan, it fits into the overall picture of your financial 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 may have.
You can discuss charitable trust and other vehicles that are in place to help ensure family philanthropy can continue, which helps to begin to introduce them to the concept of other forms of wealth that may be inherited and things you've considered on their behalf, such as retirement, healthcare, home ownership, and the ways that you are families set up to cover all of them.
Finally, family philanthropy can build cohesion, a shared sense of purpose, and an opportunity for family members to work together toward a greater good. The news is filled with celebrity estate plans gone wrong, but the stronger the family unit is to begin with and the more experience they have navigating conversations that include money, the more prepared they may be to work together through your estate.
Charitable causes are influenced by a wide network of factors and can be supported through efforts to research, prevent, or respond to community challenges. The diversity of ways to engage with philanthropy allows for families to select a broad cause to work toward together, and yet empower each individual to support that cause in the way that resonates with them the most. For example, if the family causes education, charity can go towards public policy efforts, teacher trainings, curriculum development, student outreach, or college readiness initiatives.
Selecting which charities to support and how much to donate. Also gives the family a lower risk environment to practice conflict resolution, compromise, and the humility that is often required to facilitate family harmony and alignment. By either allocating funds evenly between individuals or having them do their own research and then present proposals to the group, it can model various decision making strategies that may be employed in other aspects of the family's estate plan.
So in closing, cohesive and educated families may be more likely to succeed and preserve wealth for future generations. And charitable giving is a great inroad to these. Conversations when you are instilling the values of giving back, teaching financial literacy, and building a shared purpose, your family can have a perspective on wealth that is rooted in both your core values and strong wealth management skills.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about how to use philanthropy to prepare your heirs in your estate planning process. We'll be glad to help you. See you next time.
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