We are on the verge of a historic wealth transfer, with an estimated $84 trillion predicted to be passed down from baby boomers to their Gen X and younger heirs through 2045.

Over the past 30 years, total family wealth in the United States has more than tripled, with those born between 1946 and 1964 accounting for most of that growth.

If you have built your legacy, wealth, and assets, you may be thinking not just about what you will leave to your children and heirs but also about the organizations and causes that you supported during that lifetime.

Benefits of incorporating philanthropy into multigenerational planning

For high-net-worth individuals and families, taking a multigenerational approach to philanthropy provides you with much more than the peace of mind that your legacy will have a positive impact—your family can benefit from your philanthropic endeavors for generations to come.

These benefits include the following.

Create long-term financial and social impact

An experienced advisor or team can structure a multigenerational wealth plan that includes strategies for meaningful long-term support for organizations and causes you care about.

Your family and heirs can facilitate sustainable development for these groups, helping your donations make a lasting difference and increasing the visibility of the contributions. (Don’t discount the positive impact that these gifts can have by inspiring more support among your community and peers, potentially multiplying your gift.)

Gain tax advantages

Integrating philanthropy into your estate planning and wealth transfer strategies can reduce your estate taxes for your heirs, but there are additional tax advantages that you may not have considered.

You may have highly appreciated assets that can be donated in lieu of cash gifts to organizations equipped to accept them. Setting up or allowing for the continued support of a family foundation can also serve as a beneficial tax shelter that guarantees your wealth is preserved for the good of your heirs and chosen charities.

Instill values and responsibility to empower the next generation

Planning for your charitable gifts to pass through a family foundation or your directives gives you a chance to teach younger family members the importance of giving back and a sense of responsibility for managing family wealth and creating a lasting positive impact in society.

Think of it as the proverbial teaching a man to fish; imparting these values to younger members of your family will empower them to continue the work you began.

Build your legacy and ensure the continuity of your gifts

Your life is not singularly defined by financial wealth, so what you leave to the younger generations shouldn’t be either.

Creating family foundations or donor-advised funds can ensure your philanthropic vision endures across generations. This long-term approach allows your heirs to feel connected to the family’s history and future, prolongs your positive impact on the organizations doing the work you believe in, and preserves your intent.

Strengthen your family bond and promote wealth transfer

Engaging multiple generations of your family in philanthropy fosters collaboration and communication among family members. It can even reduce potential conflicts among your heirs. Working together on your chosen charitable projects can allow your family members to share their values and develop a shared sense of purpose.

How to incorporate philanthropy into your multigenerational plan

While the benefits may be obvious, incorporating philanthropy into your estate planning may not be as clear-cut. The steps below offer an overview of the process: 

1. Clarify your family values and philanthropic mission

If you haven’t identified your philanthropic priorities, you cannot express your wishes or set clear expectations.

Consider holding family meetings to discuss values, charitable goals, and causes or sectors that resonate with other family members. By involving your heirs, you can gauge whether you want to focus on fixed charitable interests or are open to seeing the family foundation’s focus evolve as they identify their own goals.

2. Get buy-in from younger generations

Involving younger generations early has proven crucial for ensuring that charitable giving continues over time. Getting their buy-in before they have significant responsibilities can make all the difference in their willingness to carry on your legacy later.

Encourage younger family members to participate in decision-making, volunteer activities, and leadership roles within family foundations and donor-advised funds so they are prepared later.

3. Build your professional team

Engaging professional wealth advisors, estate planners, and philanthropic consultants is critical to ensuring your family’s charitable activities align with your financial goals. They can help you craft a structured plan for charitable giving that optimizes tax benefits while supporting the family’s long-term philanthropic vision.

For example, an estate planning attorney can ​​help by:

• Providing guidance on how to structure your philanthropic giving to maximize tax benefits and minimize legal risks
• Ensuring compliance with state and federal regulations governing charitable giving
• Drafting necessary legal documents, including trust agreements, foundation bylaws, and gift agreements
• Advising on potential legal challenges and how to mitigate them

4. Identify the vehicles for your philanthropic vision

How do you want your philanthropic legacy to work? You have options! Some popular options include:

• Private Family Foundation: This option provides the most control but requires significant administrative oversight. Key considerations include:
  • Minimum annual distribution requirements (typically 5% of assets)
  • Restrictions on self-dealing and excess benefit transactions
  • Annual tax filings (Form 990-PF) and potential excise taxes

• Donor-Advised Fund (DAF): A more flexible and less administratively burdensome option. Considerations include:
  • No minimum distribution requirements
  • Less control over investment management
  • Potential restrictions on succession planning

• Charitable Remainder Trust (CRT): This estate planning vehicle allows you to donate assets to charity while retaining an income stream. Key features:
  • Immediate tax deduction for the present value of the future gift to charity
  • Income to you or your beneficiaries for a term of years or life
  • Remainder passes to charity at the end of the trust term

• Charitable Lead Trust (CLT): This technique provides an income stream to charity for a set term, with the remainder passing to your heirs. Benefits include:
  • Potential gift and estate tax savings
  • Ability to pass appreciation to heirs tax-free

Create a plan for multigenerational wealth today

With careful consideration, strong communication, and guidance, philanthropy can become a cornerstone of your family’s long-term wealth management and legacy-building strategy.

The estate and financial planning attorneys at The Law Offices of Shann M. Chaudhry, ESQ., are dedicated to preserving your legacy through multigenerational wealth planning. Contact us to schedule a consultation to discuss how we can work with your other professional advisors to create a plan for your philanthropic goals.