This article notes that the families benefiting the most from philanthropic planning treat it as far more than about tax. This is the second half of a feature delving into the links between philanthropy and business succession.

Legal expert and Family Wealth Report editorial board member Matthew Erskine – a frequent writer for us – has spoken to Joshua E Chadajo, founder and chief executive of JEC Philanthropy. This article, the second part of a two-part series, examines the important role philanthropy plays in family business succession. The editors are pleased to share this content; for responses, please email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com  (Click here for part one.)

While the strategic benefits of philanthropy in family business succession are clear, implementation requires careful attention to governance, structure, and timing. This article explores practical considerations for families and their advisors seeking to leverage charitable giving as a succession planning tool.

Governance and structure
When should families formalize their giving through structures like donor-advised funds or private foundations? Joshua E Chadajo, founder and CEO of JEC Philanthropy, offers pragmatic guidance: "Families should formalize giving when informal approaches create confusion about decision-making authority, when they want to involve multiple generations systematically, or when the scale of giving justifies the administrative structure."

For families in early succession planning, a donor-advised fund (DAF) often provides the right balance: professional administration, tax efficiency, and the ability to involve next-generation members in advisory roles without the complexity of foundation governance.

"The governance feature that matters most during succession is defined decision-making authority combined with meaningful next-gen participation. Families often err by making philanthropy either too rigid – where younger members feel like rubber stamps – or too vague, where no one knows who actually decides anything."

The case for simplicity versus structure depends on family circumstances. "Families are generally better served by simplicity early in succession planning, with structure following as the next generation demonstrates commitment and capability," Chadajo advises. "Start with a DAF where younger members serve on a grant advisory committee. If they demonstrate serious engagement over several years, consider whether a more formal foundation structure might better serve long-term governance goals."

The planning connection
For business-owning families, charitable giving intersects significantly with succession planning, particularly around liquidity events. "DAFs are particularly effective because they allow separation of timing – the tax deduction happens when funds are contributed but grant recommendations can occur over time as the family clarifies its priorities," Chadajo explains. "This is especially valuable during succession when families may be uncertain about the incoming generation's philanthropic interests."

Pre-sale planning represents a critical opportunity. "DAFs can support pre-sale or liquidity-event planning by allowing families to contribute appreciated business interests before a sale, potentially capturing the charitable deduction at full fair market value while potentially avoiding capital gains tax on the appreciation, subject to applicable tax laws and regulations," Chadajo notes. "But the succession benefit extends beyond taxes: when a successor sees the outgoing generation make a major charitable commitment before or during a sale, it demonstrates that the family's wealth carries responsibility, not just opportunity."

Common misconceptions
Many families believe that DAFs are purely tax vehicles with no governance training benefits. In reality, a well-structured DAF advisory committee can provide substantial next-generation development opportunities at lower cost and complexity than a private foundation.

Another misconception: that philanthropy must be separate from business considerations. "The most successful succession transitions integrate charitable giving with broader family governance, viewing philanthropy as another dimension of family enterprise rather than a separate silo," Chadajo observes.

Finally, some families assume that formal philanthropic structures require multi-million-dollar commitments. "While foundations typically require more substantial assets to justify administrative costs, DAFs can be effective training grounds with much smaller initial contributions," Chadajo notes. "The governance lessons and reputation-building benefits aren't proportional to donation size – a thoughtful $50,000 grant strategy can provide as much learning value as a $5 million one."

Action steps for families and advisors
For families currently in succession planning or preparation, several concrete steps can enhance philanthropy's strategic value:

-- Clarify objectives: Document whether philanthropic goals include successor development, stakeholder relationship management, family unity, tax efficiency, or some combination. Ensure alignment across generations; 

-- Create governance experiences: Establish philanthropic decision-making structures that mirror business governance principles. If the business uses committees and formal approval processes, replicate these in philanthropic governance; 

-- Involve rising generations authentically: Move beyond symbolic inclusion to give next-gen members genuine decision-making authority with appropriate oversight and mentorship; 

-- Integrate with business planning: Coordinate philanthropic giving with business succession milestones, liquidity events, and stakeholder communication strategies; 

-- Measure what matters: Track both quantitative metrics (participation rates, community partnerships) and qualitative outcomes (successor reputation, stakeholder confidence, family alignment); 

-- Address conflicts directly: When philanthropic disagreements emerge, examine whether they signal deeper business or family issues. Use professional facilitation if needed; and 

-- Document the story: Capture the family's philanthropic history, values, and decision-making rationale to provide context for future generations.

Integration imperative
Research confirms that this integration is imperative. Studies across multiple countries demonstrate that philanthropy's succession benefits are strongest when charitable activities involve substantive family engagement, align with long-term strategic objectives, and demonstrate continuity of family commitment to stakeholder relationships.

For advisors working with business-owning families, these findings suggest several implications. First, succession planning conversations should explicitly address philanthropy's strategic role, not relegate it to year-end tax discussions. Second, families benefit from viewing philanthropic structures as governance training vehicles, not just tax-planning tools. Third, successor development plans should incorporate philanthropic leadership opportunities as preparation for business leadership roles.

Looking forward
The evidence is clear: philanthropy plays a significant strategic role in family business succession when families approach charitable giving with intentionality, integrate it with governance development, and involve rising generations authentically.

As families advance succession plans, they should consider philanthropy through this broader lens. The question is not merely "How much should we give?" or "What are the tax benefits?" but rather "How can our charitable activities strengthen leadership transition, build family cohesion, and demonstrate continued commitment to our stakeholders?"

For many families, the answer involves viewing philanthropic structures – whether donor-advised funds, private foundations, or other vehicles – as governance laboratories where rising leaders can develop capabilities, build reputations, and practice stewardship in an environment that balances meaningful stakes with manageable risks.

"The families who successfully navigate this terrain treat philanthropy neither as an afterthought nor as a purely financial maneuver, but as an integral dimension of succession strategy – one that reveals character, builds bridges, and prepares the next generation for the complex responsibilities of family business leadership," Chadajo added.

The second part of this article will be published on January 7. For more about Joshua E Chadajo, click here.