Transformational Philanthropy

“Transformational philanthropy” may be a new term to some of you. Here is an easy way to understand the concept: imagine a gift that has as profound an impact on the donor who makes it (and often their family) as it does on the organization receiving the gift. That is the essence of transformational philanthropy.

One of the most interesting things about the transformations that take place with this kind of gift is that there is no relationship between the size of the gift and the degree of transformation it can bring about. The transformation occurs not as a function of the size of the gift, but instead as a reflection of the passion behind the gift.

One of our clients described the difference between a donor and a philanthropist this way: a philanthropist gives from their soul; a donor gives from their wallet. Another person said: “a donor goes to the charity’s auction to buy something (that they want or need!) at a discount, and then seeks recognition as a donor for doing so.” A philanthropist is the one who donates those items or spends their precious time obtaining the items in order to fulfill the mission of the organization.”

So, how does a donor become a philanthropist? Through a transformational gift. It is the experience of joy and meaningful accomplishment that comes from fulfilling their passions that inspires them to commit more of their time and money to organizations that allow them to fulfill their passions.

Philanthropists overwhelmingly desire to pass their philanthropic passion on to their children. The organization or advisor who facilitates that desire through multi-generational planning accomplishes several important objectives:

• Fulfilling the philanthropist’s passions through support of organization(s) that fulfill their passions;

• Developing a philanthropic spirit in the philanthropist’s children /grandchildren;

• Strengthening and uniting the family in common cause, which helps the family to remain prosperous enough to continue their philanthropy for multiple generations; and

• Creating multi-generational ‘gift streams’ to organizations.

The turbulence in our economy underscores how critical it is for non-profit organizations to build and maintain reliable, enduring, passionate donor support. Organizations and advisors who provide multi-generational planning are uniquely equipped to help achieve those goals.

Are you asking the important questions to help your donors’ gifts become TRANSFORMATIONAL?

Underlying Principles of Effective Family Governance

Effective family governance often includes structures like a Family Council/Executive Committee, Family Bank, Family Philanthropy, Family University and regular Family Heritage Milestones (family meetings). The structures utilized by the family to operate and implement their governance objectives may or may not be legal entities, but they will be unique to that family’s circumstances, and they will be built upon high-level communication, active mentoring, and encouragement of individual and collective family member achievement. 

The Family Heritage Milestones are the children/grandchildren’s hands-on classrooms to prepare them for the inheritance they will receive.  Through these experiences, each succeeding generation is mentored and prepared by the previous generation. The Milestones provide a structure to accomplish the family’s objectives. While there will be some formality to the organization of the Family Heritage Milestones (i.e., agendas, minutes, committees and reports), the actual structure will vary from family to family. The first two principles that are essential for effective family governance are described below:

Principle 1: Each family member must decide to participate for his or her own reasons. Ultimately, each family member who decides to participate (or, ‘buy-into’) the family governance process makes their decision to stay the course based upon two factors: 

Is it worth it? Can I do it?

It will be "worth it" for everyone to participate if the family establishes a governance structure in which:

•  Each voice within the family is valued;

•  Each individual finds a meaningful and productive outlet within the governance structure for their core passions.

In the successful governance process, every family member finds a role where they feel valued. Simply assigning tasks or busy-work to family members around the governance process will not achieve the level of high-performance teamwork that is the hallmark of strong family governance. Finding out what is right for them in this process can be hard work.

“For family governance to be successful, the senior generation must transition from being the monarch to being a mentor.”

An Example of “Is it Worth It? Can I Do It?"

An adult daughter was a reluctant participant in family meetings because her dynamic, hard-charging parents wanted her to be a leader like them. But she was not that type of leader, and had no desire to be that way. When her parents were going through their Guided Discovery and reflecting upon the values and passions that drove their own lives, her mother asked, “When are we going to accept our daughter for her values and passions, for who she is, and not what we want her to be?”  

In fact, the daughter wanted to be the ‘safe’ Aunt to whom anyone in the family could come to share their stories, joys and problems. When her parents realized that, and helped her to assume the leadership role that most suited her, everyone in the family benefited from the decision, and everyone elected to fully participate in the Family Council.

Strong personalities should not dominate family governance. When thinking about 'who goes where' and 'who fits best' in the context of family governance responsibilities, the answers must benefit the family as a whole as well as the individual family members. In our experience, this kind of perspective and realization only comes through a skillfully conducted Guided Discovery* interviews.  

The end result is that individual family members discover what’s truly important to them, which provides the solution to the ‘Is it worth it and can I do it’ question. This, in turn, allows them to make significant, long-term contributions to the family governance process for their own reasons.

*Guided Discovery is defined as a process of learning in which you are guided by another to learn from your own experiences. Guided Discovery goes far beyond the traditional fact-finding process to capture stories, values, life lessons and other information. With the guidance of a trained advisor, this process helps clients identify and articulate what matters most to them, and then to make those ‘discoveries’ the basis for the planning and family governance activities they will undertake. Guided Discovery, as utilized during The Heritage Process, is not therapy. While there may be some instances in which the services of a family counselor may be useful to facilitate family communication, the important thing to note is that if family governance is going to work for multiple generations, it cannot be dependent on outside advisors. 

Principle 2: Communication is the key

Developing and maintaining effective patterns of communication is the key to long-term success. It is in the process of working together that the results of greatest importance and lasting benefit to the family are achieved. Part of the family governance structure is to create experiences and opportunities for communication to develop over time.

When family communication and mentoring are functioning at a high level, the performance results desired by the family will follow. This is the key to successful, multi-generational family governance.

Families who establish and maintain effective family governance structures can experience greater unity, individual family member achievement, and the accomplishment of the goals and objectives that matter most to them–for generations. 

We will discuss two more principles focused on details of the family governance structure in the next article.

Underlying Principles of Effective Family Governance - continued

The structures utilized by the family to operate and implement their governance objectives may or may not be legal entities, but they will be unique to that family’s circumstances, and they will be built upon high-level communication, active mentoring, and encouragement of individual and collective family member achievement. 

For review, the first two principles essential for effective family governance (found in an earlier article) are:

Principle 1:  Each family member must decide to participate for his or her own reasons.

Principle 2:  Communication is the key

The next two principles included in this article focus more on the logistics:

Principle 3: The amount of money matters, but not in the way you might think.

Family Fund (sometimes known as a Family Bank) is a financial structure(s) established for the purpose of helping the family to develop a healthy relationship with money through real-world money management activities. Initially, the creation and operation of the Family Fund/Family Bank is a Pre-Inheritance Experience™ designed to allow the children/ grandchildren to talk about money together, invest money together, and make decisions about money they cannot consume.  

Later, as the assets grow, these structures may be used for any purpose to support the family, including support for family vacations and reunions, education and college funding, investments, philanthropy, business start-up loans, home down payments, etc. Because the initial focus of the fund is to serve as an educational tool, the initial funding amount need only be enough to accomplish the educational objectives identified by the parents. 

Some families are surprised to discover that there is no correlation between the size of estate and the amount of money with which the parents ultimately fund family structures, including the Family Fund/Bank, which is a structure used by many families to both educate the children as well as to fund family activities. 

 *Pre-inheritance Experiences 

Pre-inheritance experiences help to prepare the children to receive both their financial inheritance (and responsibilities) and their emotional inheritance, which independent research and our own work have proven to be equally significant when it comes to the success of the family across multiple generations.

Adults and children learn differently. Adults learn through their own experiences. Pre-inheritance experiences (so called because the parents are still alive) are hands-on activities designed to:

• Develop and maintain effective patterns of communication within the family;

• Provide an opportunity for succeeding generations to experience and learn skills, values, and life lessons;

• Prepare succeeding generations for the responsibilities of life, wealth management and stewardship;

• Begin the transfer of leadership within the family; and

• Provide a forum to share and preserve the family’s unique stories, life lessons and values from one generation to the next.

“In the family governance process, the senior generation must release enough money and control to succeeding generations to empower and enroll the next generations, but not so much that the senior generation can't comfortably let go.”

Principle 4: The focus must first be on Process, which will lead to Performance.

We have found that heirs are seldom equipped to handle the wealth that will come their way. Effective family governance should focus first and foremost on creating and managing structures that give the heirs information, education, and training that is as real-world as possible.

With that in mind, it’s easy to understand how conflict can occur if the initial expectation of the parents is that the primary purpose of family governance should be results, rather than hands-on learning (i.e., what did they LEARN rather than what did they EARN). Some kind of performance objectives will typically be a part of the process, even with those activities we would consider to be mostly educational in scope. The more ‘Type A’ the patriarch and / or matriarch of the family may be, the more performance will matter. What is important to emphasize with the parents (and it will have to be addressed many times), is that the performance they wish to see will come about as a natural by-product of a successful governance process.

The amount of money with which they may fund an initial Family Fund/Bank structure, for example, is insignificant to the outcome of siblings (and cousins, nephews, nieces, grandchildren, etc.) learning to work together in a respectful, productive fashion. The ripple effect set in motion as the family works together in an increasingly unified manner will have untold impact on individual family members, the family as a group, and the goals and objectives they set for generations.

The key notion here is impact over time. Focusing on the bottom line in this context does nothing to further the transfer of leadership from one generation to the next. Nor does it create the opportunity for developing mentoring relationships and stronger family communication. But replace the ‘how much did you make?’ question with: “So, what have you learned from this experience?” and see what can happen. This kind of question opens the door to transformational conversations.

Prepare the Parents

The importance of preparing the parents in the early stages of the governance experience cannot be overemphasized. To be effective, the family must establish mechanisms by which zones of safety and trust can be created within the family governance process. The family must also create attitudes and structures where individual family members will feel empowered. There are three keys to doing this successfully.

They involve educating family members on the importance of the “3 P’s”, as described by Buchholz and Roth in their book, Creating The High-Performance Team:

• Permission. Individuals need to be given permission to assert themselves and take the first step.

• Protection. They need to feel safe in asserting themselves.

• Potency. They also need to feel that what they contribute will make a difference.

For the family, and for the trusted professional who is helping them through the setup, launch and ongoing facilitation of their family governance structures, it is important to understand that this process is both art and science. We believe that the professional must address the family governance issue via a flexible, tested and proven process (whether The Heritage Process® or another process) because there is no ‘one-size-fits-all’ family governance structure solution.  

Families who establish and maintain effective family governance structures can experience greater unity, individual family member achievement, and the accomplishment of the goals and objectives that matter most to them–for generations. 

The Gift of Effective Family Governance

Most inheritance plans ultimately fail because the inheritors are not prepared for the responsibilities that come with their financial and familial inheritances.  

The most technically complex, artfully crafted Family Governance structures in the world will not keep the family and its wealth together, or help the family to achieve its vision over time. To thrive, the family must learn how to work together, and how to equip succeeding generations to deal with the responsibilities and opportunities of inherited wealth.

The ultimate goal of Family Governance is to create a high-performance, multi-generational team in which the succeeding generations are participating in decision-making, leadership activities, and hands-on money management long before their parents pass on.

A successful family governance process:

1.  Focuses on teaching the family to communicate and work together effectively; and,

2.  Mentors the children through real-world experiences under the guidance of other family members and advisors–– which equips them to succeed.

The governance process is not just a science, but an art as well. This is an important distinction because if there is any arena in which families do not want a transactional relationship, family governance is it. 

We believe that families must address the family governance issue via a flexible, tested, and proven process (whether The Heritage Process® or another process) because there is no ‘one-size-fits-all’ family governance structure solution. Pre-packaged structures should not be ‘imposed’ upon the family in lieu of a process that allows the family to discover what matters most to them. Packaged solutions won’t help the parents to gradually ‘let go,’ or guide the children to discover that it is worth it to participate and that they can actually do it.

We know from history that 90 percent of families fail to keep both their unity and their assets together for more than three generations. The reason the wealth seldom survives is that the heirs are usually not equipped to handle wealth that they had no role in creating. Nor do they have a full appreciation for the responsibilities that come with wealth.  

The purpose of family governance is to create and manage structures that will become the children’s ‘classroom’ to prepare them for the inheritance they will receive.  Here they will learn by doing. They gain hands-on experience in wealth management by working with limited amounts of money and control, guided by mentors from inside the family as well as by the family’s professional advisors.  

“Tell me and I forget. Teach me and I remember. Involve me and I learn.” - Benjamin Franklin

In this process, the children learn the importance of responsibility and high-level, peer-to-peer communication. Our experience is that this is a progression; as they learn skills and demonstrate increasing levels of competency, and as the parents become more comfortable, the children can manage larger amounts of money and take on more significant leadership roles.  The advisor’s primary goal is to facilitate this process.

When we examined what the 10 percent of families who have succeeded throughout history have in common, we discovered that they consciously prepared their heirs for their inheritance, typically through the use of ongoing family governance structures. The environment fostered by these structures allows for successful families to plan for and weather even the toughest times. Whatever may be happening in the world around them, they rely on their family governance structures as a vehicle for mentoring the next generation, for passing leadership, and for clarifying and enhancing the family’s vision for the future.

Key principles to successful family governance, include:

1.          Each family member must decide to participate for his or her own reasons.

2.          The amount of money matters.

3.          Communication is the key.

4.          The focus must first be on Process, which will lead to Performance.

Through the successful implementation of these key ingredients (typically through the facilitation of a skilled advisor), the children and grandchildren discover that they can participate in family governance in a meaningful way. 

When the succeeding generations decide that it is worth their investment of time and effort, the likelihood that their family will enjoy success across generations takes a quantum leap. And, as the parents come to realize that ‘letting go’ and passing leadership is not really about the amount of money, or about giving up too much control, they can focus on their roles as mentors. This means they can enjoy the all-too-rare luxury of seeing their hopes for their children and grandchildren begin to come to fruition while they are still alive. Through this structured learning experience, the succeeding generations will be prepared for the wealth they will receive.

This is the gift of effective family governance.

The 3rd Component

For as long as humans have possessed physical money and property, the processes by which most people have planned for their families’ futures have utilized two traditional planning components; financial planning and estate planning. Unfortunately, pretty much since the dawn of time, nine out of ten families who completed their planning that way ended up losing just about everything their plans were supposed to protect. To be exact, in 70% of families where wealth has been created in generation one, both the assets and the family unity are demolished by the end of generation two. By the end of the third generation, more than 90% of families see both their unity and their assets disappear.

 What is responsible for the collapse of multi-generational family wealth and unity? Is it divorce, poor financial planning, substance addiction, irresponsible spending by heirs, or just bad luck?  There is no doubt that there is a direct correlation between those troubles and the chaos that can tear families apart. But until recently, the planning world wasn’t looking outside the box for solutions.

 Rod Zeeb, the CEO and founder of The Heritage Institute, was not satisfied with the ‘90% will fail’ status quo. He was passionate about helping his own clients get through what he dubbed to be a new kind of Midas Curse. Rod’s focus was here: If 90% of families fail at the task of keeping their family unity and their family assets together for more than two generations, what do the successful 10% do differently?

 Zeeb was convinced that the answer to helping families to transfer the things that mattered most to them (money being only part of that equation) from one generation to the next was out there. His objective from the outset of what was to become a two-decade journey was now crystal clear: first, he wanted to discover what the successful 10% do differently than the 90% who fail, and second, he wanted to develop practical solutions that could help families overcome the 90% failure rate and go on to thrive for generations.

 The most significant finding that came out of Zeeb’s research was this: the reason that the 10% succeed from one generation to the next was not a reflection or result of their financial or estate planning.  Most professionals deliver good planning to their clients, and they always have. Instead, the difference between the 10% who successfully keep their family unity and their assets together for multiple generations and the 90% of families who fail is that successful families add a 3rd ‘component’ to the traditional disciplines of financial and estate planning. That component is known today as Heritage Design.

 Heritage Design is a process by which the successful 10% consciously, rigorously, and continuously prepare their family for both kinds of inheritances they will receive. The first, the financial inheritance, is the one with which we are most familiar.  The second is identified in a study by the Allianz insurance company which found that leaving a legacy (which is another description for the familial inheritance) was far more important to people than leaving a financial inheritance.  In fact, 86% of both “baby boomers” and 74% of elders rated “values and life lessons” as the most important inheritance they could receive or leave.  And, another study done in 2019 by Wells Fargo Bank, found that 90% of adult children of millionaires cherish family values over wealth. The Allianz study also concluded, "What we found was the memories, the stories, the values were ten times more important to people than the money."  

 If we have learned anything from decades of experience and studies, it is that planning for the future of your money is not the same as planning for the future of your family.