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What's your brand? Decide before you plan your charitable legacy

Funding a hospital wing or creating a foundation should align with the values of the giver

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With the surge in family offices across Canada, more high-net-worth investors have access to the concierge-like, one-stop financial services these firms offer. Family offices focus on all aspects of a family’s assets, from investment strategies to taxes to administrative tasks.

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Family offices are also in a unique position to help a family in establishing a philanthropic legacy. This process should be conducted with due diligence and care to ensure that both parties – the donors and recipients – end up happy with their gift.

Wealthy Canadian families have money to share and a willingness to do so, says Walid Hejazi, an associate professor of economic analysis and policy at the University of Toronto’s Rotman School of Management. In fact, Canada is ranked fifth in the world in the number of ultra-high-net-worth individuals, according to a 2018 report by Wealth-X. “These families want to give back,” says Hejazi.

But it’s a nuanced process, and one the family office advisor needs to understand. “It’s not just giving a hospital a cheque for $15 million, he says. “It’s really about understanding their legacy and aligning it with their values.”

That understanding should develop over a long period of time, says Tom McCullough, chairman and chief executive officer at Northwood Family Office in Toronto, and can be gleaned through frequent conversations with family members.

“A lot of our job is drawing out what they want to do,” he says of clients. “We have to ask: ‘What can you do that’s very impactful?’” says McCullough.

Advisors should survey clients at the onset of the legacy planning process, says John Amonson, president of Unbiased Financial Services in Calgary. What do they stand for, and how have they donated in the past? A family meeting should be held to determine whether its members are onside. “I ask them to come up with a family value statement,” says Amonson.

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If anyone’s views run counter to the whole, “a red flag goes up.” At that point, it’s better to focus on the matriarch or patriarch’s wishes rather than proceeding with an entire family’s wishes, he says. “It’s a risky business, but the core is identifying values that are shared,” says Amonson.

A family’s brand should also be considered at this point, says Hejazi. “You have to think about this legacy strategically,” he says, adding that any donations should complement philanthropic gestures the family has made in the past, be they donations to Diabetes Canada or the Canadian Cancer Society.

“Family offices can help families understand the kinds of gifts you can make that will reinforce your legacy in a way that is optimal to the holistic view of their portfolio,” he says.

If you give away $1 million to a foundation, only 4 percent is allocated each year, or $40,0000. Sometimes clients are surprised by that.

John Amonson, president of Unbiased Financial Services, Calgary

Once a legacy goal has been identified – giving money to name a hospital wing, for instance, or donating to a school for special needs children, or setting up a family foundation or trust – it’s the job of family office advisors to walk their clients through any obstacles or pitfalls. The family must decide on a dollar amount, for example, and whether that amount will be distributed annually or all at once.

A big part is “understanding your resources – how much you can give and in what instrument,” says McCullough.

Many advisors warn clients about setting up community or family foundations that require managing boards of directors, selecting award recipients or allocating funds on an ongoing basis.

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“It can be a lot of work,” says Amonson. McCullough concurs. “How involved do they want to be?” he asks clients. “Will you oversee special projects? Administration? When do you want to see this happen?”

Clients also need to know how philanthropy works. For example, Amonson says, “if you give away $1 million to a foundation, only 4 percent is allocated each year, or $40,0000. Sometimes clients are surprised by that,” he says.

Another aspect of philanthropy is the back-and-forth between donors and charities, says McCullough. Family members might allocate a dollar amount in exchange for naming rights to a hospital wing. But if a client doesn’t want to donate that much, the fundraising staff may negotiate a donation for an MRI centre or state-of-the-art surgical suite instead. Prepare for a back and forth, says McCullough. “It’s a funny little dance between fundraisers and donors.”

The format of the donation can also have tax consequences for clients, Amonson says. For example, if you have an asset with a large unrealized gain, it might be more advantageous to donate it as is, he says, rather than selling it first and donating the cash. That’s because cashing it will mean you have to pay half of your capital gains in taxes, he says. “In this way, you don’t have to pay tax and you can give it all away.”

Finally, he says, family offices need to follow up with their clients’ legacies after they’ve been implemented. This ensures their donations are being made according to their wishes – and the aims of their legacies are being fulfilled. Families can also be urged at that time to invest more in a given charity or initiative.

“They want to ensure,” Hejazi says, “the money they’re giving advances the causes they care about.”

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