As a vocal proponent of philanthropy, billionaire investor Warren Buffett puts his money where his mouth is: Last month he topped his previous charitable donation by pledging $2.8 million to the Bill and Melinda Gates Foundation.
Buffett has been making an annual donation as part of a campaign he helped create called the giving pledge, which encourages the rich to donate at least half their fortune to charity. According to Forbes, Buffett donated $2.6 billion last year. This year's higher pledge decreases his net worth from $65.9 billion to $63.1 billion.
Warren Buffett recently pledged nearly $3 billion to charity. © REBECCA COOK/Reuters/Corbis
What about the family?
While Buffett has made it clear that his children will not inherit enough money so that they won't have to work for a living, many wealthy families feel differently and plan to leave the bulk of their estate to the kids.
"When you have a certain amount of wealth, like Warren Buffett, giving it all away seems like a no-brainer," says Susan Dsurney, director, Client Advisory Services at AM Global Family Investment Office. "But families with $10 million to $15 million are thinking twice about it and choosing to take care of their children."
Often, the reasons involve guilt. "I think in today's age, what you'll see more of is the next generation not doing as well financially," says Dsurney. "Parents always want to make sure the next generation does better, so I think there's a certain amount of guilt involved with why they give it all to their children."
Striking a balance between charity and heirs
Keith Braun, estate planning attorney with Comiter, Singer, Baseman & Braun, says many of his clients believe that their descendants have sufficient assets and that it is important to earmark part of their wealth for charity.
Private foundations and charitable trusts, which provide a yearly income to the charity and the bulk of the trust to family heirs, are currently the most common methods for his wealthy clients, says Braun.
"But even in those situations, typically the clients have generously provided for their children during life and have made some provision for their children in their estate plans," he adds.
Getting buy-in from the family
Dsurney worked with a client worth approximately $50 million who developed a sophisticated estate plan and foundation to leave most of his money to charity. Though his adult children were advised of the plan beforehand, they balked. "They pressured him and eventually he decided to unwind the family foundation," Dsurney says.
"The children and grandchildren were very well taken care of, but in the end it came down to greed," she adds.
For parents who want to leave money to charity without causing resentment among their children, communication is the only way to create buy-in within the family, says Dsurney. Though it seems like a simple answer, it can be incredibly difficult.
Many families think that creating a family foundation, for instance, is a good way to involve family, but Dsurney cautions that it has to be democratic. "The founder doesn't always realize that his vision for philanthropy may not be the same as the children's vision. You can't force it or the children won't be on board."
In order to get children more involved in charity, parents will often name them as directors of the private foundation, giving them a say on how the funds are distributed, says Braun. "Thus, the children have the ability to pursue their charitable goals and also may be sought-after because of their ability to control charitable funds."
Find out more about how the rich and famous donate to charity.
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