Introduction
For many families, wealth is more than just numbers on a balance sheet, it’s a representation of their life’s work, values, and legacy. As wealth passes from one generation to the next, families are increasingly searching for ways to ensure that their children and grandchildren not only inherit financial assets but also the values that shaped their success.
Philanthropy offers a powerful tool to bridge the often-difficult conversations around money, responsibility, and values. By involving children and heirs in giving decisions, families create space to talk about purpose, impact, and shared goals. In short, philanthropy isn’t just about giving—it’s about connecting. This paper examines the importance of involving your family in philanthropic endeavors, the ways in which it can shape lasting values, and the advantages and disadvantages of three commonly used philanthropic vehicles: Donor Advised Funds (DAFs), Charitable Remainder Trusts (CRTs), and Family Foundations.
Why Family Philanthropy Matters
1. Initiates Crucial Conversations About Money
Many parents struggle to discuss wealth with their children, fearing it may create entitlement or anxiety. Philanthropy reframes the conversation from “how much will you inherit?” to “how can we use our wealth to make a difference?” This shift reduces tension and provides a productive context for discussing stewardship.
2. Reinforces Shared Values
Involving family members in charitable decisions provides a natural forum for discussing what is important: compassion, justice, education, faith, the environment, or community service. These shared values become the foundation for financial decisions across generations.
3. Builds Financial and Emotional Literacy
Philanthropy offers a hands-on way for younger generations to learn about budgeting, investing, and evaluating impact. Participating in grant-making decisions also teaches empathy, leadership, and accountability—skills essential for long-term success.
4. Strengthens Family Bonds
When families collaborate to solve social problems, they form deeper connections. Philanthropy fosters teamwork and gives every member—from grandparents to young children—a voice. That inclusion builds mutual respect and unity.
5. Establishes a Lasting Legacy
By embedding philanthropy into your family’s story, you ensure that your legacy isn’t just
measured by wealth, but by the lives you’ve touched. Whether through scholarships, healthcare initiatives, or environmental work, your family’s name can stand for enduring impact.
Three Popular Philanthropic Strategies
Once a family decides to give, the next step is choosing the right strategy. Below is a summary of three key options that many of our clients use as the vehicle for their family giving: Donor Advised Funds, Charitable Remainder Trusts, and Family Foundations.
1. Donor Advised Fund (DAF)
Overview:
A Donor Advised Fund is a charitable giving account held at a sponsoring organization
registered as a non-profit. You contribute assets, receive an immediate tax deduction, and
recommend grants over time.
Pros:
- Simplicity: Easy to set up and administer—no legal entity needed.
- Immediate Tax Benefit: Get the deduction in the year of the gift, even if you grant funds later.
- Investment Growth: Contributions can be invested and grow tax-free.
- Low Cost: Minimal administrative fees compared to other vehicles.
- Privacy: DAFs allow anonymous giving if desired.
Cons:
- Less Control: All grants must be approved by the sponsoring organization.
- Limited Flexibility: Can’t directly employ family members or fund non-501(c)(3) activities.
- No Compensation: Donors cannot be paid for managing the fund or receive any personal benefit.
Best For: Families who want a simple, cost-effective, and flexible way to involve heirs in ongoing charitable decision-making without the burden of running a foundation.
2. Charitable Remainder Trust (CRT)
Overview:
A CRT is an irrevocable trust that pays income to you (or other beneficiaries) for life or a set term, with the remaining assets going to charity. It can be structured as either a fixed annuity (CRAT) or a percentage of trust assets (CRUT).
Pros:
- Income Stream: Provides steady income for you or family members.
- Tax Efficiency: Immediate charitable deduction; avoids capital gains on donated appreciated assets.
- Legacy Giving: Remainder passes to charity, enabling significant philanthropic impact.
Cons:
- Irrevocable: Once funded, it cannot be undone or altered.
- Complexity: Requires legal setup and ongoing administration.
- Fees: There are ongoing trustee and accounting fees.
- Limited Family Involvement: The trust is primarily a financial vehicle, not a collaborative family decision-making platform.
Best For: Donors looking to reduce taxes on appreciated assets, create retirement income, and support a charity at death. Can also be paired with wealth replacement strategies for heirs using life insurance.
3. Family Foundation
Overview:
A Family Foundation (often a Private Foundation) is a separate legal entity created to make grants to charitable organizations. The family typically serves on the board, makes investment decisions, and determines how grants are made.
Pros:
- Control: Full decision-making power over grants, investments, and operations.
- Family Engagement: Excellent platform for family meetings, education, and legacy building.
- Name Recognition: Can carry the family name and support long-term visibility.
- Employee Family Members: Family can be compensated for their work (with IRS restrictions).
Cons:
- Cost: Requires legal formation, tax filings, and ongoing compliance. Typically suited for $5M+ in assets.
- Minimum Payout: Must distribute at least 5% of assets annually.
- Public Disclosure: Tax filings (Form 990-PF) are public, including salaries and grants.
- Complexity: Requires governance, record-keeping, and professional guidance.
Best For: Families with significant wealth who want to create a multi-generational legacy, a formal governance structure, and direct involvement in philanthropy and grantmaking.
Choosing the Right Strategy
The best vehicle depends on your goals, assets, and how actively your family wants to be involved. Many families use a combination of strategies, for instance, a DAF for ongoing giving and a CRT for income planning and charitable impact.
At Shepherd Financial Partners, we guide families through these decisions with empathy, clarity, and deep experience. Our team helps structure giving strategies that align with your values, financial plan, and legacy goals, while facilitating the conversations that matter most.
Conclusion
Family philanthropy isn’t just a tool for giving—it’s a gateway to deeper relationships, clearer values, and lasting impact. Whether through a DAF, CRT, or family foundation, structured charitable giving can help you pass down more than wealth. It helps you pass down wisdom.
If you’re considering how to bring your family into your giving journey—or how to structure your charitable plan for maximum benefit—Shepherd Financial Partners is here to help you lead with purpose.
Disclosures
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Investment advice offered through Shepherd Financial Partners, LLC. A registered investment advisor. Registration as an investment advisor does not imply any level of skill or training.
Securities offered through LPL Financial, member FINRA/SIPC. Shepherd Financial Partners and LPL Financial are separate entities. Additional information, including management fees and expenses, is provided on Shepherd Financial Partners, LLC’s Form ADV Part 2, which is available by request.
The content is developed from sources believed to be providing accurate information.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
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