What Are Your Family’s Giving Priorities?

Minimal focus on both family giving and tax optimization doesn’t necessarily reflect a lack of interest or concern.  There are three main reasons why families may fall into this category:

1. Information overload is perhaps the most common reason.  Clarifying giving goals isn’t always easy, and families sometimes avoid these discussions simply because they don’t know where to begin.
2. There’s not always an urgent need. Unless there’s a trigger event, such as a death or serious illness in the family, long-term planning isn’t always top of mind.  Many people reevaluate their estate and tax strategies only in the wake of a crisis.
3. Finally, some families take a laissez-faire approach to wealth, and assume that everything will work out on its own.

For families who fall into this category simply because they’ve never had a reason to assess their tax and giving strategy, it may be time to plan with more intention and take a proactive, not reactive, approach to estate planning.

Relationships are paramount for families in this category.  Often, seeing the downside of wealth – such as when it becomes a wedge between family members or fails to motivate the next generation – serves as a trigger for high-net-worth individuals to get extremely intentional about giving.  As a result, they may have clear ideas about when beneficiaries should receive distributions, and how best to create positive outcomes from wealth.  Not only are they aware of wealth’s risks, but they’re also willing to forego tax optimization benefits in order to maintain family unity.

High family focus doesn’t mean the same thing to everyone.  Some might say what’s best for their family unity is not giving at all.  For others, it could mean hiding that family wealth even exists.  (Not recommended – research shows that family secrets are kept for only 3 years on average, and a lack of transparency could have negative effects.)

In general, getting intentional about giving is a positive step.  One risk is over-thinking the impact of wealth.  As important as structure is, wealth creators can’t control everything.

It might appear that people who fall into this category aren’t concerned about the impact of wealth on their beneficiaries.  That’s generally not the case.  Most high-net-worth individuals want to minimize their taxes; those who do it at the cost of their beneficiaries or giving strategy are often prompted by urgent needs, not indifference.

For example, a pre-IPO rush to move assets into tax-efficient accounts may prompt taxes to drive family wealth decisions.  When a major liquidity event triggers a tax-focused approach, advisors can help clients take a prudent and efficient financial path.

Sometimes families don’t realize they’ve neglected to focus on giving to family until they are deep into estate planning. If that happens, it’s important to know that there is flexibility to make adjustments.

Those who want to can move from a tax-centric focus toward a more family-focused approach.  Advisors can help people understand which tax advantages to keep in place, and which can be tinkered with to further benefit family.

According to advisors, many wealth clients aspire to be in this category.  This is defined by balance, as conversations are never about family or taxes — it’s always both.  This balance takes a lot of time and energy to maintain.  Consensus takes time and requires consistent clarity when it comes to intention, thus families should expect to make decisions at a slower pace.

No matter where a family begins, it’s never to late to strive toward this more balanced focus on taxes and family.  For example, families could start by scaffolding gift-giving around values. Giving to heirs during life could be seen as family focused because it aligns with the personal value of witnessing how the gift is used, but it’s also a tax optimization strategy.

Because this category requires diligence, families need to have a consistent flow of information between themselves.  The first step is to clarify the strategies to family members.  What are the family’s intentions?  Who’s involved?  Family members are more likely to be on board when you make your thinking explicit.