The Selfish Case for Philanthropy

The transformative impact of philanthropy for good causes and families

Philanthropy is a noble pursuit.

It’s about giving back.

But for family offices, the benefits go far beyond pure altruism.

A quick case study: I worked with a family office that supported a homeless charity in their city. The family patriarch was instrumental in establishing the relationship with the charity, but he immediately took a back seat role. His son, then in his early twenties, managed the relationship with the charity, acting as the family’s primary contact with the charity and joining its board of trustees. He dealt with the charity's office politics, constant demand for donations, and haphazard operations. His role also involved representing the family, speaking at events, and helping the charity to find new donors.

He made some mistakes. He would admit himself that he was awkward and clumsy at first, but he grew into the role. He got used to speaking with staff much older than him and improved his public speaking immeasurably. He learned to be diplomatic. He learned to say no. He used his experience in the family office to help improve the operations of the charity, and he helped the charity connect with other donors. His experience and the skills he developed proved hugely beneficial for the charity, himself, and his family.

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For many family offices. philanthropy is a strategic imperative. It supports the preservation of wealth across generations and helps to build legacy.

Philanthropy can boost the family's public image and can offer substantial tax advantages.

For the next generation, philanthropy instills core values, builds skills, unites the family around a common cause, and prepares young members to handle wealth responsibly.

Philanthropy supports family values and can build family bonds.

The Shift to Philanthropy

In 2010, the philanthropic landscape was permanently altered when Bill Gates and Warren Buffett launched the Giving Pledge, a commitment by the world's wealthiest individuals and families to give the majority of their wealth to address some of society's most pressing problems.

There is a growing trend in impactful giving. Since 2010, over 200 of the richest people on the planet have pledged to give away more than half of their wealth either during their lifetimes or in their wills.

The common causes that family offices support:

According to "Ultra High Net Worth Philanthropy 2024" by Altrata, the ultra-wealthy gave $190 billion to philanthropic causes in 2022.

The focus of philanthropy evolves over time and generations. The following table from Citi Bank shows the changing focus of philanthropy over generations. A notable shift in focus towards the environment for later generations.

The Benefits of Philanthropy

Cultivating a Legacy of Values

Philanthropy is about planting seeds for the future.

A strong set of family values is crucial for sustaining family wealth across generations.

Philanthropy can help instill and perpetuate family values. By championing causes that align with their beliefs, families can leave a lasting imprint that goes beyond wealth (think Carnegie, Rockefeller, Walton)

Philanthropy can be a unifying force for a family. Projects often require collective decisions and cooperation.

Younger generations are often given the responsibility to play a leading role in philanthropic efforts. The exposure to negotiating and decision-making can support their personal and professional growth. Hands-on experience helps them to develop critical leadership skills but also deepens their understanding of the family’s values and the broader societal issues at stake.

Philanthropy can serve as a practical training ground for future wealth management. By involving them in financial planning, grant-making, and the strategic aspects of philanthropic activities, younger family members learn how to handle wealth responsibly and make impactful decisions.

Tax Benefits

Let's cut to the chase, philanthropy can play a central role in tax planning.

Strategic charitable donations can lead to significant tax benefits, allowing more funds to be channeled back into wealth preservation and growth initiatives. By intelligently structuring philanthropic activities, family offices can optimize their financial health, ensuring more assets are preserved across generations.

The tax benefits of philanthropy will vary depending on jurisdiction (a detailed deep dive on tax is one for a future newsletter), but benefits can include deductions, avoidance of capital gains tax and potential reductions in estate taxes.

An increasingly popular vehicle for donations are Donor-Advised Funds (DAFs). These enable families to make charitable contributions to IRS-recognized nonprofit organizations/businesses. Contributors to DAFs can receive immediate tax benefits upon making their donation. They can then recommend grants from the fund to eligible nonprofits over time.

This arrangement allows for the contributed assets to potentially grow tax-free, enhancing the impact of future donations. DAFs are especially appealing for family offices due to their administrative ease, lower cost compared to maintaining private foundations, and the ability to maintain donor anonymity if desired. These features support strategic philanthropic planning and streamline the management of charitable activities.

Have you used a DAF? Do you run a DAF? Let me know if you would like to hear more on this topic.

Networking Opportunities

Charitable activities open doors to networking. Connecting with like-minded people and leaders can pave the way for collaborations and partnerships that can extend well beyond philanthropy.

Through their charitable endeavors, family members can build connections with other philanthropists, community leaders, and organizations with similar values and objectives. These relationships often lead to collaborations and strategic partnerships in their broader business interests.

Brand Enhancement and Avoiding Negative Press

There is clearly major brand value in giving. Reputation can make or break businesses and being seen as a force for good has immense value. Philanthropic efforts spearheaded by family offices resonate with the public, enhancing goodwill and building strong community ties.

When a family office invests in society, society notices.

And enhanced trust can bring business opportunities.

For prominent families, negative press is almost inevitable at some point.

A history of charitable engagement can be a buffer, softening blows and rounding out the public image of a family office. Goodwill can count for a lot in the face of negative media. It can mean support from the public and influential figures.

Many families use philanthropy as a way to honor predecessors whose values and success enabled the current generation's wealth. This reverence for legacy is a powerful narrative that can resonate within communities and strengthens the family’s standing in public eyes.

Philanthropy – the strategic choice

Philanthropy is more than a duty for family offices - it’s an integral part of their strategic planning.

Philanthropy can unlock powerful benefits: tax optimization, enhanced reputation, and fortified family bonds.

In many cases, philanthropy has become a necessity for families looking to truly make their mark and safeguard their legacy. It may sound self-serving, but it’s a rare occasion where looking out for oneself means looking out for others too.

𝕏 highlights

Generational thinking:

Last weekend, at a dinner party I was sat next to a compliance officer. It made me think (turns out he was lovely)

How many generations has your family home been in the family?

📚 what to read

The Myth of the Silver Spoon: Navigating Family Wealth and Creating an Impactful Life by Kristin Keffeler explores the challenges faced by the next generation of affluent families, including familial expectations and societal judgments. The book emphasizes the importance of harnessing private wealth for public good, providing a pathway for affluent youth to lead fulfilling and impactful lives.

📻 what to listen to

Business Untitled comes highly recommended. David Barry, Mel Carter and Mike Novogratz talk about their path to success and interview high-caliber guests. I’m a few episodes in and it’s inspiring stuff.

📺 what to watch

A little off-topic (and not for family viewing), but Baby Reindeer on Netflix has me gripped. A chilling true story of a struggling comedian and his obsessive stalker. The show is destined for accolades and awards.

And finally…

This week The Family Office Buzz hit your inboxes.

This is a short and snappy look at family office and family office-adjacent topics from around Twitter, LinkedIn and the general media.

If you missed it, you can find it here

Let me know what you think and feel free to share interesting articles/posts for next week

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That’s all for this week, look out for The Family Office Buzz on Monday and the regular newsletter next Friday.

Bon weekend!

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