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Why We Don’t Leave Money to Charities

When it comes to estate planning, there seems to be a societal money script in the U.S. that “Good parents leave everything to their kids, and the more money there is the better off they will be.”

This conclusion is based on my decades of experience with clients, and it is also supported by research showing that few people leave bequests to charities in their wills. It’s not surprising, then, that estate planning seldom includes much thought or discussion of two potentially important topics: how to pass on an inheritance in a manner that does no harm, and whether to leave money philanthropically to organizations or charities.

Generally, the decision to leave a financial legacy is influenced by two factors: feeling love for or commitment to the beneficiary and sharing values with the beneficiary. These two criteria often apply to one’s children and are likely to weigh heavily in the automatic inclination to leave everything to them.

The problem, of course, is that the “leave it all to the children” money script may be an extreme belief, assuming without question that money is good and giving money is good. It does not necessarily leave room to question whether an inheritance or the way it is given will be harmful or helpful. It does not consider the reality that money is neither good nor bad. It is a commodity and a tool that someone can use positively or destructively.

I once saw this money script in action with a client couple, entrepreneurs who had built a successful business and created considerable wealth by the time they retired. They had three children. Two shared their entrepreneurial values and had built successful careers of their own. The third was an outspoken critic of capitalism and privilege who lived marginally and, in the parents’ view, consistently made poor financial choices.

The parents began their estate planning with the assumption that they should leave everything equally to the children. At the same time, they were conflicted about giving several million dollars to the child who actively despised and rejected the system and values through which that wealth had been accumulated. They were also uncomfortable with the idea of not leaving equal amounts to each child.

I asked them about any charities or organizations they were involved in. They immediately started talking passionately about their life’s work and their participation in several organizations in their field. The emotional connection with these organizations was obvious.

So I asked what I thought was an obvious question. Had they ever considered leaving bequests to any of these organizations? There was a pause. I remember the shocked look on the wife’s face. She said, “No, it really never occurred to me.” I asked, “How would it feel if you did that?” “It would feel amazing.”

They both got excited about the idea, and we began exploring possibilities. Eventually the couple decided to leave outright gifts to several organizations. They also choose to leave several IRAs and annuities to an endowment fund they established with a local donor advised fund (DAF), where each year 5% of the fund would be donated to support scholarships and projects that aligned with their values.

Ultimately, their decision was to leave 85% of the estate philanthropically and leave 5% to each of the three children, which would be around one million dollars each. This amount, they agreed, would be enough to help rather than harm. In addition, they chose to leave the anti-capitalist child’s share through a trust that would pay out 3% annually. This would provide a basic income of around $30,000 a year for a long time, and on the child’s death the remaining money would go to the donor advised fund.

By going deeper than the money script that money should be left to the kids, this plan addressed the real emotional struggle this couple had around their estate. Exploring the emotions allowed them to find a “happy medium” solution designed to be helpful rather than harmful for all three children. It brought their legacy giving into alignment with their goals and values.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

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