With great power comes greater responsibility. As rich Indian families generate substantial wealth, many are beginning to recognise this responsibility- and ask themselves tough questions:
- I have created far more wealth than my children or I would ever require. How can I give some back to those who really need it?
- Rather than simply writing a cheque to a charity, how can I ensure that every rupee I contribute brings real change in the lives of people?
- Both my spouse and I want to actively devote time to the cause we are associated with, and not just give money. How can we do this?
- What legacy am I going to leave behind?
Traditionally, families have either sought advice from elders/close associates to get answers to many of these questions or have engaged in ad-hoc charitable acts whenever the patriarch was asked for a donation. As families evolve, they are seeking a more professional and organised approach to their philanthropic aspirations. They have been turning to their wealth manager or Family Office. Given this backdrop, families ought to evaluate many things before embarking on their philanthropic journey.
Finding a cause: This is one of the most important areas where making the right decision matters. Some adopt a cause that the family has a close association with. For example, supporting the village or district where the family originates from. Others help patients with a disease that a loved one in the family may have suffered. Whatever the cause, it is important that the family feels a close connect with it.
Do it alone or collaborate? Having your own NGO may sound good on paper, but brings practical challenges — hiring qualified staff, getting office space, setting up processes, last mile implementation, amongst others.
What am I giving — only money, or both time and money? Depending on the degree of involvement the family wishes to have, they can devote time, money, or both. The patriarch of the family may not have any direct philanthropic experience, but excellent business skills. High net worth professionals usually find on retirement that they have a lot of time to devote to their philanthropic project.
Already have a philanthropy foundation: Some families may already have a history of giving for a number of generations. They too can benefit from professional advice either through training of their foundation's staff, or by an independent assessment and audit of the foundation's activities, aimed at maximising impact.
Structuring: Very often, for business families, the wealth is tied up in the company. Hence, any discussion about caning out a portion of wealth for philanthropy is intertwined with the succession planning dialogue. Some families may not have any children and aspire to contribute their entire wealth towards charitable causes. So the prudent use of private family trusts, charitable trusts, Section 25 companies and other forms of entities are crucial to ensure all family objectives are met and in a tax-efficient manner. Professional advice becomes important here.
Successful families are keen to ensure that even' contribution they make is creating maximum impact. Not only do they want to donate greater sums of money, they are increasingly inclined towards greater personal and family involvement in the initiative. Gradually, they are seeing the benefits of using a professional network of advisors to help find the right cause, develop an execution strategy, design an appropriate structure, and monitor and audit activities of the NGO. This ensures their philanthropy objectives are met, both during and after their lifetime, and they leave a lasting legacy.
Disclaimer: The views expressed in the articles are personal of the authors and do not reflect the views of Kotak Mahindra Bank Ltd.