A lasting legacy

Monday, 17 February 2014
Tanja Jegger considers the role of philanthropy in wealth management, and how it can be used to build a family’s social capital.

Most wealth managers and private banks now offer philanthropy services to their clients. There is a close connection between philanthropy and the management of wealth, largely because of a growing understanding that financial assets have limited value without a broader context.

Succession and legacy planning

Many creators of wealth have observed that deciding how to pass on your fortune is at least as difficult as making it in the first place. Some avoid the big decisions, or defer them until it is too late. Others, however, plan in considerable detail how they are going to hand the baton to the next generation, and how they want to shape their legacy, not just for their family, but for society at large.

Among wealthy families, a sense of public duty has often accompanied the privileges of wealth and, in planning their legacy, the founder of the family fortune will consider a number of issues:

  • Defining family identity: ideally, the creator of the wealth will define the family vision, its purpose and how to measure success.
  • Contributing to society: creators of wealth have to decide whether they would like to leave the world a better place and, if so, how to make a contribution to society, both during their lifetime and after their death.
  • Legacy objectives: at the same time, the wealth creator or their successors need to define the purpose of their wealth and how it should be distributed.

Once the first two issues have been addressed, the balance of wealth is available for philanthropic causes. A family may also like to develop its unique social capital and craft a family foundation that will nurture the growth of the family’s most important assets – its individual members – in service of the common good.

Interestingly, preserving wealth and giving it away are not alternatives, but part of the same strategic legacy. Case studies show that the families most committed to giving are often those that are most successful in preserving their inheritance.

It has also been observed that a philanthropic organisation may be used as the first forum for family members to experience working together, in preparation for participation in a cross-generational wealth-preservation plan.

Family philanthropy and social capital

It is essential for a family to recognise that its most important assets are its members. This is reflected through acknowledging individual identity formation, establishing a family governance framework, facilitating personal growth, and positive interaction with family members, communities and society.

Strategic philanthropy offers a professional framework in which the development of social capital can be placed at the centre of succession planning and wealth management.

Developing social capital

An effective family foundation provides the opportunity for children to explore their interests and discover their calling – whether this is working in the family business or running the family foundation – as well as develop a sense of responsible stewardship in relation to family wealth.

The creation of a family foundation provides family members with a vehicle to develop their identities and interests, and offers a framework for next-generation members to connect with the wealth created by their forebearers, so as to develop an awareness of worth.

Family foundation management

The family’s wealth advisor will ideally work closely with a philanthropy expert to ensure the key issues of succession, tax and integration into the existing family governance are considered in the planning phase. Once these issues are understood and the source and size of the philanthropy budget, as well as the interests of family members, have been clarified, advice can be given as to how to structure or restructure philanthropic engagement.

Project selection and impact

A proper mission statement and governance procedures will be agreed by the family to address strategy. This will cover important considerations, such as which causes to target, how to prioritise them, and whether to give to existing charities or establish new ones. It will also define how decisions are taken and the sources of funding and financial management.

Running an effective family foundation is complex, but, with the right input and effective management, it can contribute significantly to building a family’s legacy. Central to a family’s wealth management is the creation of an enduring contribution that energises successive generations to pass on the value that doing good is just as important as doing well.

Author block
Tanja Jegger

Tanja Jegger is Head of Philanthropy with Stonehage, Zurich.

The content displayed here is subject to our disclaimer. Read more