Insights on Philanthropy
by Fred Smith

The real challenge in estate planning is not the technical and financial part.  According to Roy Williams at The Williams Group  only 2 to 3 percent of failed estate transfers were caused by professional incompetence on the part of advisors, accountants and attorneys.  The major cause of failure is the lack of preparing the heirs for assuming the responsibilities and benefits of wealth.

Why is that?

The results of interviews with 3,250 families showed the primary cause of failing to prepare heirs is a breakdown of trust and communication within the family.  “Parents were routinely decisive in dealing with business matters or in selecting their professional advisors.  But when it came to inviting their heirs to become involved in the preparation of wills, trusts, etc., they were very reluctant.  Parents feared that heir awareness of the estate parameters might diminish their children’s motivation and distort their values.”  The result?  “This desire to “protect” only led to mistrust which led to less communication, which finally resulted in a “cordial hypocrisy” among family members agreeing to not bring up the subject.” 

In fact, the study identified the top six concerns of parents that, in turn, proved to be obstacles to communication and trust. 

                65%  Too much emphasis on material things

                55%  Naïve about the value of money

                52%  Spend beyond their means

                50%  Initiative could be ruined by affluence

                49%  Won’t do as well financially

                42%  Hard time taking financial responsibility

By not having adult to adult conversations and building trust, the parents spend far too much money on professionals and assuring themselves that the trusts are even more restrictive and focused on managing the finances of the heirs. “The outcome: less prepared heirs more likely to fail in their future responsibilities.”

Fortunately, there are ways to break the pattern and I would encourage you to read the full article for how to do that. 

I’ve been reading more stories about teaching philanthropy to kids by handing them funds to give away.  One article had a well-meaning foundation settling $100,000 on a group of college students and challenging them to figure out the best way to dispense the money.  The amounts are all over the map but the assumption is the same: If we give kids our money and help create a structure they will learn to give.  For instance,

Students in a new philanthropy course in the University of Virginia's Frank Batten School of Leadership and Public Policy awarded $100,000 in grants to seven Charlottesville-area nonprofits.The grant funding was provided by the Once Upon A Time Foundation to encourage students to think about philanthropy, said the course instructor, Paul Martin, Batten's director of professional development and a former chair of the City of Charlottesville's Community Development Block Grant Task Force. The 28 students, representing 17 majors from across the University, spent the semester deciding how to award this $100,000 – acting, in effect, like a miniature private philanthropic foundation, Martin said. Starting on the first day of class with 46 letters of inquiry from local charities, the students did research, site visits, interviews and other due diligence to whittle the field to seven organizations that work on poverty alleviation and youth development. "We quickly all learned that giving away money is difficult," said Mary Kate Steinbeck, a fourth-year sociology major in in the College of Arts & Sciences. "Especially when you have 30 different voices of passion coming into the class with different ideas of how best to spend it."

I would suggest what the foundation taught the students was not how to be personal givers but how to be what we call a “philanthropoid”  – and those are two different skills.  That is why I always argue for parents and well-intentioned people to match the giving of kids and students rather than give them their money to, as the article says, “spend”.  Unfortunately and sadly, this kind of giving almost inevitably ends up teaching more spending habits than giving skills.