Thoughts on Transferring Wealth to the Next Generation

Roxanne Alexander

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Senior Financial Advisor

Lately, clients have been asking if we wouldn’t mind having a conversation with their kids about planning for future wealth transfer, as well as helping their children learn how to save and become financially independent. The decision as to whether to talk to your children and when is very personal, so there is no right answer. Every family has their differences, and views on money can be disparate, but having a conversation in advance can prevent future mistakes and confusion within the family. If you have open communication lines with your kids and don’t mind them knowing about the assets you have, bringing up this topic sooner rather than later can be advantageous.

First, decide how much information you want to reveal and what you would like to accomplish or instill in your children. Sometimes it may make sense to involve your financial advisor or estate attorney, who can be a sounding board and an intermediary when explaining types of accounts, estate documents, and other investment questions that may arise. Having a discussion about current beneficiaries, where accounts are located, and the purpose for each type of account is important. For example, if a child inherits an IRA or 401K account, there can be huge tax consequences if the child takes out all the funds at once.

Family Dynamics

If there are several children and grandchildren involved, usually most parents try to be fair. If you pass away and leave more money to one child than the other, since you helped one more while you were alive, communicating this decision in advance may prevent conflict. Also, discussing which assets would be best given to whom may make splitting assets smoother in the future. It may be more efficient in some cases to leave a house to a child that lives in the same location versus to a child who lives in another country. There may be certain tax advantages to leaving an IRA to one child versus another. If one child is struggling and paying for grandkids’ college and also thinking about buying a house, and you really want to pay for this, leaving only IRA assets to that child would cause them to have to take out funds and pay taxes prematurely, in comparison to another child that may be more financially stable and does not need the cash now.

Business Succession

If you are passing on generations of wealth from a family business, you may want to discuss how the money was made and explain the family legacy. If the family business is still active, communicating with your children about how you expect the business to continue may be important. One of our clients had a great idea. He wrote a book about his life for his grandkids and future generations. He added various pictures and life stories such as his first car and first girlfriend, and how he started in his profession.

Charitable Giving

If you are involved in charitable causes, this may be an opportune time to explain the importance of having philanthropy continue into the next generation. If you have a very strong inclination to give back to a specific cause because of a past experience, when your kids understand that decision they may be more inclined to remain involved in that cause once you are gone. One way of doing this could be to set up a charitable fund and have your kids as beneficiaries, but to discuss the purpose of the funds in advance.

Special Needs

If you are dealing with a child with special needs, it is important to have a conversation with other siblings or family members regarding your wishes when you are gone. If the plan was to have another sibling take care of the child with special needs, communicating and planning for this in advance can prevent future surprises. Assuming that a sibling wants to take responsibility as trustee or guardian for another sibling may end up in disaster. If you set up a trust with a sibling as trustee and they resign, you may end up with a corporate trustee making the decisions.

Continuing the Plan

Since your financial plan was put in place to make sure you are secure throughout your lifetime, if significant assets are projected to be left behind, continuity with your financial plan may be another topic for discussion. If your kids are all well off, planning for grandkids and future generations may now be your goal. Having a discussion with your advisor along with the family will help you make better decisions about how to plan for the future. Keep in mind that this should be revisited when there are changes in the tax laws or if there are changes in the family such as a marriage, divorce or new grandchild.

Feel free to reach out to Roxanne Alexander if you have any questions by email: or phone: 305.448.8882 extension #236.

How to Navigate Between Private Foundations and Donor-Advised Funds

Kristin Fang

Danqin Fang, CFP®, CFA Financial Advisor

There are more tools now available to help you plan your charitable giving. The two most popular vehicles are private foundations and donor-advised funds (DAFs). While they are both designed to accomplish the same goal, namely of getting funds to charitable causes you care most about, they each come with a different set of pros and cons based on their different structures, tax rules, privacy, and flexibility levels.

Private Foundations

These are independent tax-exempt 501(c)(3) legal organizations, established by individuals, families, or corporations with public charitable missions. The board of directors or trustees and officers are responsible for such foundations’ three main duties: 1) Operational management, 2) Asset investment, and 3) Grant decisions. As its own legal entity, a private foundation provides its management board of great flexibility in grant making activities and total control over investments. However, this also comes with additional legal and recordkeeping responsibilities, with the need to comply with a set of more stringent tax rules. Before jumping into this powerful tool, it is prudent to weigh up all of the limitations and the level of commitment required.

Donor-Advised Funds (DAFs)

On the contrary, DAFs have gained increasing popularity in recent years by complementing what private foundations can do[i]. DAFs are charitable investment accounts established within a public charity that is affiliated with a community foundation, a financial institution, or other sponsoring organizations. Such funds were first addressed and defined in the Pension Protection Act of 2006[ii]. Donors who contribute assets to a DAF are eligible for immediate tax deductions. The contributions grow tax-free and are available for grants directed by donors at any time to any IRS-qualified public charities. While not offering the same grant-making flexibility as private foundations, DAFs provide an efficient solution for donors who want to outsource grant-making due diligence and the extensive administration of running a private foundation.

Comparisons and Planning Opportunities

  • Ease of setting up? DAFs win

DAFs are easy to set up as donors simply fill out account applications for the sponsoring organizations, without any cost associated, and then the accounts will be ready to use in just a few days. However, to set up a private foundation, the donor must first make a filing with the state to establish a trust or corporation and then apply to the IRS to ensure it is eligible, which can be a time-consuming and cost-burdensome process.

  • Independently managed? Private Foundations win

As a separate legal entity, a private foundation can appoint a board of directors and hire officers, including family members, to administrate the foundation, and the ultimate control over the foundation’s assets and the flexibility of its operations. However, A DAF is simply an account managed by a sponsoring organization, over which the donor has limited control regarding the account management, investments, and grant-making directions.

  • Preferred tax treatment? DAFs win

A wide variety of assets can be contributed to DAFs and the IRS allows a deduction of up to 60% of the donor’s Adjusted Gross Income (AGI) for cash gifts and up to 30% AGI for the fair market value of appreciated assets if held over one year, either for publicly or non-publicly traded assets. However, the deduction limit for private foundations is capped at 30% AGI for cash gifts and 20% AGI for appreciated assets. Even better, there is no excise tax on the annual income of DAF investments while generally a 1–2% federal excise tax is levied on a foundation’s annual investment income.[iii]

  • Investment control? Private Foundations win

Donors or the board of directors of private foundations can appoint investment advisors or can self-direct any investments they think prudent for their foundations. However, the investment options of DAFs are more limited for donors to choose from because they need to be approved and listed by the sponsoring organizations. Sometimes exceptions are made for higher account balance DAFs to include outside advisors.

  • Grant-making control? Private Foundations win

Private foundations donors have full control over the distributions of grants. There are no restrictions on the types of charities (either domestic or foreign) that can receive gifts, and even individuals can receive grants from private foundations, such as scholarships. However, DAF donors can only direct grants to eligible public charities approved by sponsoring organizations because these sponsors take on due diligence and legal compliance duties.

  • Distribution requirements? DAFs win

The “qualifying distributions” rule requires private foundations to grant 5% of the fair market value of its assets to other charities each year. However, there is no such requirement for DAFs and such donors can make grants anytime they like.

  • Privacy matters? DAFs win

The sponsoring organizations of DAFs can submit IRS form 990 with individual donor records kept private, so DAF donors can choose to grant anonymously should they wish. However, private foundation must complete a 990-PF tax form, which requires all contributions and grants to be part of the public record.

  • Recordkeeping and expenses? DAFs win

DAFs offer consolidated recordkeeping and tax reporting through the sponsoring organizations, and the fund administration and investment fees are charged to the accounts proportionate to their sizes. However, as an independent legal entity, a private foundation is responsible for all its own legal, accounting, tax reporting, investment management, and staffing operations expenses.

  • Successor election? DAFs win

Donors can simply name other individuals or charities as successors in their DAF accounts, whereas private foundations require the board of directors to vote for successors.

There is no one-size-fits-all solution to carry out your philanthropic mission. To plan well, it’s important to start by asking the right questions to help understand your priorities. For example:

  • Do you have a specific or a broad range of causes you’d like to support?
  • Which charities would you like to support? Are there any foreign charities or individuals?
  • Who will decide on grant making? Is flexibility in investment control important to you?
  • Do you want to make anonymous grants?
  • Will the different tax treatments of each charitable vehicle have a significant impact on your specific situation?
  • Do you want to donate in cash or highly appreciated assets?


Complementing a private foundation with a DAF

Sometimes choosing only one between a private foundation or a DAF is not always the best option, instead, a strategy to include both may be necessary. Establishing a DAF to complement a private foundation can be very effective because you can make grants with flexibility and control investments using private foundations, while at the same time, you can use DAFs to solve situations where you want to make anonymous awards to certain controversial causes you’d like to support, and to take advantage of DAFs’ favorable tax treatment for donating highly appreciated assets, etc.


On your journey to become a more successful philanthropist, it is important to utilize the most efficient and effective strategies to achieve your charitable goals. There is no one “right” way, each specific situation should be planned accordingly with a customized solution.

[i] 2018 DAF Report,. National Philanthropic Trust





Feel free to reach out to Danqin Fang if you have any questions by email: or phone: 305.448.8882 extension #222.