When’s the best time to share your wealth?

When you choose to contribute your wealth to society, you want to make sure it has the greatest possible impact. Deciding when and how to pass it on is a huge part of that.

By

When the current pandemic becomes but a vague, distant memory, there will be many Australians who are still hurting from its social and economic effects. As JBWere Head of Family Advisory and Philanthropic Services Shamal Dass says: “The most disadvantaged will remain the most disadvantaged – the negative impact will be deeper and it will last longer.”

Meanwhile, there will be an entire younger generation who will have to disproportionately shoulder COVID’s heavy debt burden, at the same time as they work to address the mounting challenges of climate change, among other things.

If you’re planning to leave your wealth to your family at some point – either now or after your death – this intergenerational inequality and societal inequity may give pause for thought.

But how best to address it? While you might be tempted to bequeath the majority of your money to your youngest family members to help with the tougher times ahead, it’s worth considering some other approaches. Helping society as a whole may help still more, Dass argues. “What’s the point of your children prospering if the world around them is fractured?” he says. “There is no individual that stands outside the community.”

The limitations of a will

But bequeathing a large part of your wealth to a worthy cause may also miss the mark, Dass points out. One reason is that it’s putting off until tomorrow what could be done more effectively today. “If you’re someone with wealth and you’re thinking about making a difference, why would you wait 30 more years to address problems that are very apparent and worsening right now?” he says.

It’s not just the lack of immediacy that’s an issue. There’s also the fact that a will is generally very final – it’s impossible for you to alter once you’re not around.

In contrast, if you choose to share your wealth in life by way of philanthropy, you have the opportunity to actively engage in the process, evolving your approach over time in order to become more effective. “That’s the wonderful thing about being a philanthropist,” Dass says. “You have the opportunity to learn; you get to understand what works, what doesn’t.” A will doesn’t offer this same flexibility.

A meaningful approach

Ambiguity can also be an issue when it comes to your final wishes. However, a great deal of philanthropy suffers too from this issue, according to Dass. “A problem we see often is when you write a statement so vague and open that you could fund anything at any time for anyone.”

It’s why JBWere advises its clients to focus on what they want to achieve. “You could spend a hundred million dollars and not change a thing, so you need to be targeted but also thoughtful about what you do,” Dass says.

Thus, prospective philanthropists need to educate themselves first. “Having made a lot of wealth [doesn’t] infer some sort of superior knowledge and understanding of complex social or environmental problems. It’s something you have to learn,” Dass explains.

It also requires considerable forethought if you are to take any meaningful steps towards solving the issue. “That’s what philanthropy is. Philanthropy is not charity,” Dass says. “A charity helps the person in the immediacy of the problem, whereas philanthropy tries to solve the problem. It tries to understand why the problem exists and address the core causes.”

The who, what, why before the how

Your first move is to work out what you want to achieve and who you are trying to help. “In a sense, this will help define the ecosystem you’re playing in,” Dass says. For example, if you wish to help the disadvantaged, you need to decide whether these are young or old people; women or men; people in urban, regional or rural settings. Clearly, each group’s needs are quite different.

The next step is to define the problem – based on research and evidence – and to work out a strategy for helping tackle that problem. It’s only then that you can work out an appropriate way to become involved in efforts to solve it.

Communication is an essential part of all this. You can’t hope to devise a solution, or a strategy, without input from relevant organisations. As Dass notes, at its core, philanthropy isn’t so much about giving away money, but efficiently and effectively partnering with a for-purpose organisation so it can help deliver the outcomes beneficiaries need and want.

JBWere can assist you here by helping you to better understand the problem you wish to solve and connecting you with the relevant organisations that can help you. “What you then have to do is to meet them, to engage and know them,” Dass says.

A family affair

At the same time, it’s critical you discuss your philanthropic goals with family – so you can all understand where you want to go together.

“When you’re dealing with things like inequity and inequality, you’re really investing in changes that will benefit you and your children,” Dass says. “So it’s very important they understand not only what you as an individual are trying to achieve, but what it is that, together, the family wealth can achieve.”

Again, that’s where JBWere can help, putting the necessary family governance processes in place to ensure the family moves forward as one based on a shared vision. Governance isn’t about compliance, as some people imagine; rather, it’s about providing you with the means to have those necessary conversations.

“Governance is about enabling you to engage, communicate and be more effective,” Dass says. “It’s that engagement and dialogue which actually everyone learns from – because underpinning that is knowledge and values and morality. It actually reveals more about your family members than anything else.”

For all time… or all at once?

When involving family and future generations in your philanthropy, it’s tempting to set up a foundation that can last in perpetuity. That’s a great idea if it suits your cause, but a lump sum might work better in certain circumstances.

As Dass explains: “If you want to deal with rural health or intergenerational poverty, you have to invest the amount of money that’s needed at the time to actually break that cycle – [rather than, for example,] four per cent of your private fund forever. It’s the difference between servicing homelessness and trying to eradicate homelessness.”

Ultimately, it comes back to genuinely understanding what’s required. “It’s not about philanthropists sitting at the big desk and writing out cheques based on what they think,” Dass says. “You must engage with those you are partnering with and learn what they need from you to successfully help the beneficiary. That should decide your strategy.”