The best plans and intentions can be led astray by misconceptions based on erroneous assumptions, especially with philanthropic succession planning. Often, senior or same generation family members don't have a true understanding of one another's charitable interests, sense of time and financial commitments and passions. At the risk of stating the obvious, family members should candidly and honestly discuss these issues and then make informed, deliberate decisions as to the family's philanthropic legacy.

Case in Point

My clients, a charitably inclined husband and wife, had a combined net worth of approximately $60 million. Their two adult sons lived far from their parents and from one another. The clients regularly made direct donations, together with grants from their private foundation (PF), to various locally based charities. They had also made generous lifetime gifts to their sons. The couple's respective estate plans provided for additional dispositions to their sons and grandchildren. A significant percentage of the clients' combined estates would fund the existing PF at the survivor's death. The husband had been actively involved in the PF's administration, investments and grantmaking, while the wife's involvement was limited to grantmaking. The wife had deferred to her husband's decisions on the PF's investments and administration, so she was unaware of the time commitment and effort required to properly administer the PF. The sons weren't involved with the PF at all.

After the husband died somewhat suddenly, we revisited the wife's estate plan with her attorneys. The wife wanted to continue her and her husband's legacy — she intended to become more actively involved with the PF. She assumed that, even though her sons hadn't been involved with the PF, they would gladly take over when she passed away. She and her husband instilled philanthropic values in their sons and our client told us that her sons were actively involved with local charities in their respective communities.

We strongly suggested that our client speak to her sons about their interest, if any, in continuing the PF when she passed away. Since one son was visiting from out of town, we scheduled a meeting with him and our client. Before the meeting, we sent our client a copy of an article entitled “Committing to Creating and Maintaining a Private Foundation” that I co-authored for the June 2010 issue of Trusts & Estates.

Our client and her son read the article so they would have an understanding of the responsibilities and time required to properly administer and oversee a PF. When we met, our client indicated that she now had a more informed understanding of what's required to execute her duties as a PF manager and asked her advisors and attorneys for ongoing assistance. She wanted to actively participate in the PF during her life and was excited about continuing the PF's mission. However, after candid discussions with the mother and son, it became apparent that the sons' charitable interests not only differed significantly from their parents, but also from one another's. Equally important, the sons had little or no experience or interest in investments, PF administration or business-like activities.

The son who attended the meeting said he had absolutely no interest in being involved with the PF, but would do so out of respect for his mother and late father. Even with the help of advisors, he didn't want the responsibility of administering the PF (and complying with minimum distribution requirements and other PF rules), making investment decisions and coordinating these efforts with his brother. His mother was very surprised, but understanding, and didn't want her sons to continue the PF after her death unless they wanted to do so. She asked for alternatives to the existing plan.

We suggested she continue administering the PF, but only fund what will be needed to satisfy grantmaking during her lifetime. The PF should terminate at her death with instructions to her sons as to how its remaining funds should be distributed. Also, a portion of the bequests originally intended to pass to the PF at her death could be paid out directly to her and her late husband's favorite charities. The balance could be divided equally into two separate donor-advised funds (DAFs) — one for each son to designate payouts for his favorite charities. The benefits of this plan are:

• the client enjoys her philanthropic activities during her lifetime;
• her favorite charities receive bequests at her death; and
• each son can recommend donations through a separate DAF for his favorite charities without administering a PF either separately or together with each other.

The son who attended the meeting was very receptive to these suggestions. He viewed the alternative as a way that he and his brother could honor their parents by continuing charitable giving through the DAFs. The client was relieved that the conversation had taken place and an informed, deliberate decision was made to implement suitable alternatives for all the family members.

— This article is designed to provide general information about ideas and strategies. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate-planning strategy. The content represents thoughts of the author and does not necessarily represent the position of Bank of America. U.S. Trust Bank of America Private Wealth Management operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation. Bank of America, N.A. Member FDIC.

Case studies are intended to illustrate products and services available through U.S. Trust. The case studies presented are based on actual experiences. You should not consider these as an endorsement of U.S. Trust or as a testimonial about a client's experiences with us. Case Studies do not necessarily represent the experiences of other clients, nor do they indicate future performance. Investment results may vary. The investment strategies discussed are not appropriate for every investor and should be considered given a person's investment objectives, financial situation and particular needs. Clients should review with their U.S. Trust advisor the terms, conditions and risks involved with specific products and services.

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Douglas Moore is a managing director of U.S. Trust Family Office, U.S. Trust, Bank of America Private Wealth Management in New York and co-chair of the Trusts & Estates Estate Planning & Taxation Committee

SPOT LIGHT

Hustling and Bustling

“Toy Peddler of Dupont” (50 in. by 60 in.), by Mian Situ, sold at the Jackson Hole Art Auction in Jackson, Wyo. on Sept. 17, 2011 for $230,000. Mian's realistic style has gained him an impressive and loyal following. Known for his depictions of rural China, Mian strives to capture the dignity and beauty in the everyday lives of its people. He feels a strong need in his work to preserve their traditional ways of life and dress, before they're lost and forgotten.