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Estate Planning: Using Philanthropy to Build Family Wealth

Henry Kaelber
Henry Kaelber
Hoffman, White & Kaelber
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The winter holidays, for many people, is a special time; a time when people are a little nicer, a little friendlier and a little kinder. It's a time when we focus less on what we don't have and instead find ourselves grateful for what we have. It is a time for family and friends; and a time for goodness and giving. This truly is my favorite time of the year!

Giving is, perhaps, the most basic expression of personal and family values. However, not enough people seem to comprehend the vast benefits that charitable giving can bring to one's self and family. It can be one of the most self-satisfying acts a person can perform and the practice can provide a family much benefit in return for any effort expended. It is the sharing that makes philanthropy a critical factor in the development and preservation of family values – for both their "human" and "intellectual" capital.

At our firm, we believe that there are three fundamental types of family wealth: human capital – the family members, intellectual capital – the knowledge and capabilities of the family members, and financial capital. We promote that a family's primary purpose should be to nurture its human and intellectual capital; and it is a family's financial capital that provides the wherewithall to grow the other two.

Philanthropy, or in the original Greek translation philosanthropos, means love of my fellow man. Modern definition would describe a philanthropist as an individual who is a significant supporter of charitable organizations. Yet, I'm sure many people associate the word philanthropy as only relating to the wealthy. Well that's just not true! When we focus on the word "significant", a person can be defined as a philanthropist whenever he or she is doing what is charitably possible according to his or her individual situation.

Wealthy families, however, have less choice in the matter because almost all practice some form of philanthropy. For wealthy families, philanthropy can be voluntary or involuntary and the choice is quite simple. About half of a wealthy person's estate will go to their heirs. And, the other half can either go to the government as taxes or it can go to charity. When it goes to the government, this type of philanthropy is involuntary.

By contrast, doesn't the voluntary kind seem more rewarding and valuable?

As readers of my articles well know, wealth management is the ultimate goal of all that we do at Hoffman, White and Kaelber. Yes, we promote our services; yet, you will find that we always seek to present thought provoking topics that are relevant to our wide audience.

This article lays a foundation for me to reflect how one facet of charitable estate planning can offer affluent families more than mere estate planning. In the next, I'll introduce a tax advantaged arrangement known as the charitable remainder trust; then, the following article will discuss the benefits and provide an wealth replacement example. Stay tuned...

Henry Kaelber will be available to take your questions until Monday, January 9. Please use the form below to submit your questions.

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