I presented to the North Carolina Planned Gift Council recently about the importance of philanthropy in the family business. While understandably much of the emphasis of this topic is on the significant tax-saving opportunities available to those who plan well, the focus of my talk revolved more on the ramifications of losing a parent. This happens to affect me personally as my mother recently died.
From a tax-planning perspective, philanthropy can certainly be advantageous. As Steve Watt, director of planned gifts at N.C. State University, puts it, “Assets can be donated to a charity such that capital gains are avoided and you get a tax deduction.”
You also receive the income from the assets during your lifetime, Watt said, and can establish your life insurance in such a way that your children will receive an inheritance equivalent to the original asset value. Through this, the charity receives the value of the original asset – and you avoid estate taxes. (Now you understand why your alma mater is always knocking on your door.)
However, from an emotional and psychological perspective, much more is going on.
Family businesses are breeding grounds for entitlement. Companies that are reasonably successful can generate some impressive income. As a result, owners may splurge on items they couldn’t afford when they were growing up – on themselves, and on their children.
This unbridled spending can have a negative effect on children’s perspective of money. While certainly nothing can substitute for developing a good work ethic at a young age, witnessing philanthropic giving by a parent can have a very positive impact on one’s attitude toward money.
Growing up with a lot of money, without appropriate measures being taken, can result in children who have uncontrolled spending habits, with their identities wrapped up in money. There’s also the risk of them having a lack of ambition, and – worst of all – a lack of self-esteem.
To be sure, philanthropic giving cannot rectify poor parenting. However, watching your role models donate money to good causes for no other reason than that they believe in helping those in need or promoting a good cause, and truly not wanting or expecting anything in return, puts a healthy stake in the ground on the purpose of money.
My mother donated money to a school that only accepted children who were growing up in poverty, with the mission of teaching students self-reliance. This always had an effect on me.
Having a parent die is incredibly sad. That unconditional love and support you have always had is now gone. Parents serve as a cohesive element: They keep the family together, even though it may be spread out, have different lives, and even contain some conflict. Once this focal point is no longer there, it becomes very difficult for the family to stay connected.
Philanthropic giving, especially some sort of trust, where the children must come together to make decisions, can provide a vehicle to keep the family connected over time. While it can be anything, setting up something that the family remembers you for can be special. No, it will not reconcile family differences. But it does somewhat obligate everyone to come together, if just for a day, for a positive purpose, and remember the good times. It’s kind of like Thanksgiving.
Henry Hutcheson is a nationally recognized family business speaker, author and consultant. He can be reached at Familybusinesscarolina.com.
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