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Giving for a lasting impact across generations
PHILANTHROPY is a key ingredient in family harmony, unity and continuity as it contributes to effective family governance. It can play an integral role in expressing values and encouraging family participation, problem-solving, communication, and stewardship of shared resources.
It seems harder to preserve wealth than it is to make it if we're to believe estimates showing that a significant percentage of high net worth families may experience a decrease in their fortune as it's passed on to the next generation. While each family is different, the themes can broadly be brought back to a breakdown in communication and trust, lack of preparation and shared family goals.
The nuts and bolts on having the right structure and governance is important for wealth transfer, but there is also a growing shift towards philanthropy to carry family values and traditions forward. At a very basic level, responsible charitable donations make sense as a short-term intervention. But without a focus on replication and scaling-up towards sustainability, the donor may not leave a lasting impact and legacy.
Families can initially be cautious about "institutionalising" a philanthropic programme, as it may seem too hard-nosed for what may be an action driven from the heart, by their faith, by their social obligations and /or life experiences. Some would argue that the rich tapestry of one's life and a family's history are essential elements of caring and diligent philanthropists.
We work with clients to address pressing societal issues and causes in their communities, ageing neighbours, family breakdown and dysfunction, entrenched poverty, youth development, and environmental degradation, which are but a few current challenges. Today's philanthropists seek to be strategic in their giving, supporting sustainable initiatives with measurable social, economic and/or environmental impact.
Introducing a charitable trust as the cornerstone of your giving and family governance makes sense. For many parents that I speak with, especially first generation entrepreneurs, they're concerned the lifestyle their children are accustomed to may detach them from the struggle they endured to be successful. Setting up a family charitable trust for succeeding generations is more likely to foster a sense of collective responsibility to society.
It requires family members to collectively identify and articulate their core and shared values as a first step in expressing their focus for giving. Having these conversations and identifying the common thread that brings everyone together can also build a family legacy that grows across generations.
Structuring an estate for charitable purposes requires working closely with the family. Especially for families doing this for the first time, I get them to think about their purpose, governance, and impact. The first step is deciding where they want to focus their efforts.
Identifying a family's charitable mission requires some reflective questions about what everyone wants to get involved in. What legacy would they like to leave? What events have shaped or affected them? Is it the community from which they or their forebears originated from? Or have educational institutions helped make them who they are today? Do they think that the environment needs preserving and sustaining? Perhaps they might even want to help in finding a cure for a disease that claimed a loved one?
Next step is articulating and giving structure to how the fund should be set-up. Some areas to think about are identifying who is responsible for making decisions on how the funds will be allocated and should family members only and/or a neutral party be involved in the governance.
The last aspect to think about is due diligence and auditing how the funds were used by the charitable organisation. This helps to reinforce transparency and accountability, ensures the money is being put to best use, and meets expected outcomes.
As greater wealth accumulates in Asia, giving with impact can be the glue that binds the family together through shared values, good communication, and trust. Making collective decisions around philanthropy can be the training ground for the tougher discussions on personal wealth and succession.
- The writer is head of Philanthropy Advisory and Family Governance Advisor, Private Wealth Solutions, Asia Pacific, HSBC Private Banking.