For many ultra-wealthy inheritors—individuals who have received or are heirs to at least $100 million in assets—philanthropy is both a personal interest and a defining characteristic. But in today’s world of social entrepreneurism, it’s about more than charitable gifts and actions and increasingly about using wealth and resources to make a significant, positive impact on the world.
A number of factors contribute to the philanthropic motivations of ultra-wealthy inheritors:
• A belief that wealth carries social responsibility and those that have the resources and the wherewithal to be philanthropic should do so.
• Core values that have been ingrained into their thinking and decision-making by ancestors and extended family relations.
• Sociological influences that come via their peers, other multigenerational families with similar interests, the charitable community and the media.
Room For Improvement
Despite the charitable efforts of the wealthy, 65.8% of 114 ultra-wealthy inheritors we surveyed said they feel they can do a better job at being philanthropic.
Part of the problem may be that only 26.3% of this group have clearly defined philanthropic goals. Those with such goals know exactly what they want to accomplish—the causes they have prioritized, the level of financial and personal commitment they are willing to make, and the legacy they want to create and leave for themselves and their families.
Frequently, they employ structures to achieve their charitable agendas, such as foundations and trusts.
More telling is that 52.6% of the ultra-wealthy inheritors have only directional philanthropic goals (21% are unsure of their goals). Many inheritors in this segment have a broad sense that philanthropy is important to them, but have not yet outlined their precise goals and plans in a way that is actionable. This uncertainty is often related to a desire to keep all options open; as a result, no steps are taken toward solidifying a charitable agenda.
Connecting With Other Philanthropists
While we’ve observed some significant commitments to charitable causes among ultra-wealthy inheritors because of the assets they control, they’re often open to new ideas. This includes going beyond charitable causes to the mechanics of being philanthropic. Nearly three-quarters of them (74.6%) are interested in how other wealthy families and individuals are approaching philanthropy. They want to understand what their peers are doing across a spectrum of activities. By sharing with their peers, ultra-wealthy inheritors are able to expeditiously move up the learning curve.
Inheritors are more inclined than wealth creators to rely on their peers as a critical source of information and knowledge in philanthropy, as well as other endeavors. About seven out of 10 ultra-wealthy inheritors (69.3%) are highly interested in being introduced to like-minded individuals in order to expand their networks, access new resources and expertise, learn about new opportunities and understand best practices in various functional areas.
In sum, we find that many ultra-wealthy inheritors are actively seeking ways to use their fortunes more effectively and make a meaningful difference to society and the planet. They are intent on acquiring both the skills and the network needed to make an impact, while studying how their peers and others with compatible interests have chosen to approach philanthropy.
Taking The Reins
Our survey showed that many ultra-wealthy inheritors are also motivated to take a leadership role in their charitable endeavors, with 72.8% of the 114 ultra-wealthy inheritors saying they expect to be extensively involved in deciding which charitable causes to support.
For ultra-wealthy inheritors, it’s not enough to back worthwhile causes. They also want to get results and expect to play a role in ensuring that this happens to their satisfaction (Figure 1). About half of inheritors surveyed plan to focus their efforts on making charitable projects more effective, whether it is through streamlined operations, more efficient use of capital or fund-raising. An even larger proportion, about two-thirds, plan to evaluate the impact of their gifts and measure the results of the underlying charitable organizations in order to fine-tune their philanthropic activities.
Ensuring that their inheritance is being used wisely and effectively is of critical importance to many wealthy inheritors, so it’s no surprise that many of them are exploring methods that allow their assets to have the maximum impact.
There are numerous ways to get more impact out of charitable dollars. It’s not about getting better results from non-profit organizations, but rather about getting better results from the management of funds earmarked for gifting.
According to the survey, 29.8% of ultra-wealthy inheritors are taking steps to improve the results they get from their charitable assets.
There are many reasons for such a low response rate, including restrictions related to the legal structures and vehicles used in the estate planning and charitable giving process. However, the most pervasive reason that so few super-rich inheritors are leveraging their charitable assets is simply a lack of knowledge. It’s due to a dearth of expertise among the inheritors themselves and their primary advisors in this specialized field that leads to the underutilization of charitable funds. By contrast, nearly 63.2% of ultra-wealthy inheritors are strongly interested in learning how to leverage philanthropic monies so that more assets can be directed to the causes and organizations they care about.
There are a number of ways to leverage philanthropic monies. On the personal side, various trusts can transform assets into greater charitable dollars than direct donations. With respect to private foundations, some examples of leveraging philanthropic dollars include:
• Issuing debt.
• Incorporating charitable life insurance on a corporate basis.
• Hedging portfolios.
At a minimum, ultra-wealthy inheritors must be able to make informed decisions. This necessitates a basic understanding of the options available to them, the advantages and disadvantages of each option in the context of their own goals, and the anticipated consequences.
Conclusion
Through a combination of research and hands-on work with wealthy families, we’ve found that the social impact of philanthropy is more important to younger generations than older ones, and more important to inheritors than it is to wealth creators. Furthermore, because wealthy inheritors feel drawn to charitable causes and want to use their family’s wealth to leave a mark on the world, the majority need guidance when defining their goals, identifying the appropriate methods and vehicles to achieve those goals, and connecting with similar individuals who are willing to share their own perspectives and experiences.
As a result, philanthropy is one of the key topics that advisors and wealth managers can use to engage and develop a dialogue with younger family members and demonstrate their expertise and role as a trusted and essential partner.
Richard J. Flynn, is the managing partner of Flynn Family Office. He works with families, entrepreneurs, executives, athletes, artists and entertainers to create customized financial strategies. He can be reached at rflynn@flynnfamilyoffice.com.
