How Should Your Family Give? Choosing the Right Charitable Strategy
For families who have accumulated significant wealth, charitable giving often becomes about much more than writing checks.
It becomes a question of legacy.
What causes matter to us? How much do we want to give? Do we want our children and grandchildren involved? And what do we hope our family's wealth will accomplish long after we're gone?
Those are important questions because there is no single "best" way to give.
For some families, making gifts directly to organizations they care about is exactly right. Others want a more organized approach through a donor-advised fund. And families with substantial charitable goals may want the greater control and involvement that comes with a private family foundation.
The right structure depends less on which one is "best" and more on what you want your giving to accomplish.
Start With Why You Want to Give
Before deciding how to give, we think families should spend some time discussing why they give.
Perhaps there's an organization that has played an important role in your family's life.
Maybe education, medical research, your church, conservation, the arts, or your local community is particularly important to you.
Or perhaps you've reached a point where you know your family has more wealth than it will reasonably consume, and you'd like some of that wealth to make a difference elsewhere.
Those motivations should come before choosing a charitable vehicle.
Because a donor-advised fund, private foundation, or charitable gift is ultimately just a tool.
The purpose comes first. The structure should follow.
Direct Giving: Simple and Effective
Sometimes the simplest solution is the best one.
If you want to support a particular organization, you can simply make a gift.
And that doesn't necessarily mean writing a check.
Charitable organizations may be able to accept appreciated securities, real estate, and other assets. For investors with highly appreciated stock, gifting the shares directly can sometimes be more tax-efficient than selling them first and donating the cash.
For those age 70½ or older, Qualified Charitable Distributions, or QCDs, can also allow eligible IRA owners to send money directly from an IRA to qualifying charities. For those subject to Required Minimum Distributions, QCDs can also count toward satisfying the RMD.
Direct giving has one enormous advantage: simplicity.
You identify an organization you care about and support it.
But simplicity also means giving up control. Once the gift has been made, the charity determines how those dollars are ultimately used, subject to any restrictions it has accepted.
For families who simply want to support good organizations, that may be perfectly fine.
For families who want philanthropy to become part of their family's identity, however, another structure may be more appropriate.
Donor-Advised Funds: Creating a Family Giving Account
A donor-advised fund, or DAF, occupies an attractive middle ground.
You contribute assets to a sponsoring charitable organization and generally receive the charitable deduction in the year the contribution is made, subject to applicable tax rules. The assets can then potentially be invested and grow tax-free while you decide which qualified charities you want to recommend grants to over time.
The sponsoring organization handles much of the administration.
That simplicity is one reason DAFs have become so popular.
But we think there's another benefit that's easy to overlook:
A donor-advised fund can turn charitable giving into a family activity.
Instead of Mom and Dad quietly writing checks every December, the family can sit down together and talk about giving.
Which organizations should we support?
Why do we care about them?
How much should we give?
Should we continue supporting the same organizations, or are there new needs we want to address?
Children and grandchildren can participate in those conversations. And, depending on the sponsoring organization's rules, successor advisors can often be named so future generations can continue recommending grants from the fund. That's one way a DAF can help keep later generations connected to a family's charitable mission.
Those conversations can teach younger family members something important about wealth:
Money isn't only something to accumulate. It's something we can use intentionally.
Private Foundations: When Philanthropy Becomes Part of the Family
For families with substantial wealth and ambitious charitable goals, a private foundation offers something a donor-advised fund cannot provide to the same degree:
Control.
With a DAF, the sponsoring charitable organization ultimately has legal control over the assets and grants, even though donors recommend where the money goes.
A private foundation is different. It is its own charitable entity, allowing the family substantially greater control over its charitable strategy, investments, governance and grantmaking. Foundations can also hire staff and operate charitable programs directly.
For the right family, that's incredibly powerful.
You aren't simply donating money.
You're building an organization around your family's charitable mission.
Parents, children and grandchildren can serve together, evaluate charitable opportunities, establish grantmaking priorities, meet with nonprofit organizations and make decisions about how the family's resources can have the greatest impact.
That can help transform philanthropy into a multigenerational family endeavor.
More Control Also Means More Responsibility
The advantages of a private foundation come with additional complexity.
A foundation requires administration, recordkeeping, tax filings, compliance with rules governing private foundations, and ongoing oversight. Depending on its size and activities, it may require professional management and coordination among investment, tax and legal advisors.
And then there's the family itself.
What happens when Dad wants to support his alma mater, one child cares deeply about conservation, another wants to support medical research, and a grandchild wants to address homelessness?
Those aren't necessarily problems.
In fact, those discussions can be one of the most valuable parts of family philanthropy.
But they demonstrate why creating a foundation isn't simply a tax decision.
It's a family governance decision.
The original source makes a similar point: foundations can be built to last, but their financial and legal complexities can be accompanied by the emotional complications of family members working together.
Families considering a foundation should think carefully about who will participate, how decisions will be made, what happens when family members disagree, and who will eventually lead the organization.
Don't Let the Tax Deduction Drive the Decision
Taxes certainly matter.
The timing of charitable deductions, the type of asset being contributed, your income, estate planning objectives, and the charitable structure you choose can all affect the tax consequences.
And thoughtful planning can sometimes allow you to give more effectively.
But taxes shouldn't determine what your family cares about.
We would rather begin with questions like:
What do you want your wealth to accomplish?
Who do you want involved?
How much control do you want?
Do you want to give during your lifetime, through your estate, or both?
Do you want your children and grandchildren to continue this work?
Once those questions are answered, your financial, tax and estate planning professionals can help determine the most appropriate structure.
Giving Can Be Part of the Legacy
When people hear the word "legacy," they often think about what they're going to leave their children.
We think there's a broader way to look at it.
Your legacy isn't simply what you leave behind.
It's also what you teach your family about the purpose of wealth while you're still here.
Imagine involving your children and grandchildren in charitable decisions today. Let them research organizations. Give them a voice. Talk about why certain causes matter to you. Let them see the impact your family's resources can have on someone else's life.
Those experiences may ultimately be more valuable than the dollars themselves.
Whether that happens through direct giving, a donor-advised fund, or a private foundation is secondary.
The important part is being intentional about what you want your family's wealth to accomplish.
The Bottom Line
There isn't one charitable structure that's right for every family.
Direct giving offers simplicity.
A donor-advised fund can provide organization, flexibility, and an easy way to involve the next generation.
A private foundation can provide greater control and create a platform for multigenerational philanthropy—but with substantially greater responsibility and complexity.
The best choice starts with understanding your family's goals, values, dynamics, and the role you want philanthropy to play in your lives.
The question isn't simply, "How much should we give?" It's "What do we want our giving to mean?"
If you're thinking about how charitable giving fits into your family's financial and estate plan, we'd be happy to help you explore the possibilities—schedule a complimentary 15-minute call.
A Weekly Perspective on Planning and Markets
Each week, we share The Week in Review — a short collection of articles on
financial planning and wealth management, along with a brief overview for context.
One email per week. No promotions, no sales – just clarity.
This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.