OCTOBER 03, 2020
Establishing family foundations in perpetuity is a popular choice among donors; some estimates suggest as many as two-thirds of family foundations operate in perpetuity. Often, this choice is almost automatic for family foundations, based on a vision of harmonious family legacy extending across multiple generations.
Family-wide generosity can be a wonderful thing—a source of great satisfaction and multiplied good. But donors who establish foundations, donor-advised funds, or other philanthropic vehicles for their families must take precautions to protect their intent (not to mention the wellbeing of their familial relationships).
Here are six ways you as a donor can work to protect your intent while enjoying the fruits of family philanthropy:
1. Be clear
Begin with a firm understanding of your own intentions, and communicate them in clear terms to your family members, estate planners, and legal advisors. A willingness to tackle awkward conversations about core values up front will pay huge dividends in the future.
Pay attention to deep-seated differences. Family members who disagree with your stated mission are not likely to change their minds, and many donors realize too late that forced togetherness around a foundation’s board table can do irreparable harm to a family in its private life, rather than knitting its members together.
2. Expose your family early and often to your values and priorities
If you seek an opportunity for your family to come together and experience the joy of giving with few or no restrictions on mission, then engage your children in your charitable endeavors early.
For example, Toby Neugebauer, co-founder of the Texas-based Quantum Energy Partners, took his family on a 110-day worldwide trip to expose them to the slums of Mumbai, the orphanages of China, and the dirt-path villages of Tanzania—all toward the goal of ensuring that his sons develop a sense of the possibilities for responding to real need in the world with the money they will inherit.
It is a good idea to reinforce these early lessons with oral histories and videos that enhance your family’s understanding of your intent.
3. Make participation in your giving voluntary
Be clear with family members that formal participation in your family philanthropy is voluntary, not obligatory. Your children may simply not share your interest in charity, especially when they are beginning their professional lives and starting their own families.
4. Make service on your board a privilege
Treat board membership as a privilege that must be earned, not an automatic consequence of one’s DNA. Be clear from the beginning about who is eligible to sit on the board and the qualifications needed for service. Will you include spouses or domestic partners? Adopted children? Stepchildren? Don’t wait to make those decisions until they involve specific individuals—think them through up front.
5. Set term limits
If the pool of potential family board members is large—or if you want to restrict the number of family members sitting on the board at any one time—consider a system of three-year rotations.
6. Create less formal alternatives to board service
Consider less formal alternatives to board membership at your foundation as means of engaging family members in philanthropy without handing them governance:
- Appoint family members to an advisory board rather than the core governing board.
- Use a separate foundation or a donor-advised fund seeded with smaller amounts of money to allow family members who disagree with—or are simply less interested in—your mission to support charities of their own choosing. Even relatively small grants can provide much-needed giving experience and may even bring some family members closer to the donor’s values and priorities.
- Establish multiple foundations for your children. The late Gerry Lenfest was wary of family foundations (which he called “generally a big mistake”) and chose to limit the life of his foundation. But he also wanted to involve his children in philanthropy, so when Lenfest and his wife sold their company in 2000 they had each child set up his or her own foundation. This gave the Lenfest heirs an opportunity to pursue their personal charitable interests, while keeping the Lenfest Foundation focused on Gerry’s goal of improving educational and workforce development outcomes for the youth of Philadelphia.
- In place of board membership, give family members limited discretionary grant privileges within your primary foundation to pursue their own interests. This can be a good choice for a place-based foundation with a family that is geographically dispersed. Discretionary grant allotments should never be so large that they distract from a foundation’s core mission and instead create individual “fiefdoms” within the family. And, of course, they should not be used for grants that directly contradict your intent.
- Don’t allow the foundation to become the only—or even the primary—vehicle for family interaction. This is especially important when only some family members serve on the foundation board. Continue to convene the full family for private occasions completely apart from the foundation’s activities.