Do Family Foundations Spend More On Overhead Expenses Than Nonfamily Foundations?

By: Serena Jezior
Published: Dec 2021
Available Formats:

Executive Summary

Overview:

In recent months, there have been policy conversations percolating on Capitol Hill that call into question the expenditures of private family foundations. Specifically, there have been questions about (and subsequent policy proposals to address) a possible abuse in family foundation expenditures as it relates to administrative expenses (i.e., salaries, travel expenses, etc.) that are incurred by employed family members or descendants of the original donor(s). To investigate this, data on private foundation spending was collected and analyzed to assess whether there were significant differences between overhead expenses of family versus non-family foundations.

This study examines the ratio of charitable administrative expenses to qualifying distributions for private family foundations versus private independent (nonfamily) foundations. This ratio measures a foundation’s expenditures for charitable administrative expenses relative to its total expenditures for directly carrying out a charitable purpose (“qualifying distributions,” which include grants plus charitable administrative expenses). This paints a picture of how much a given foundation spends on salaries and benefits, office space, etc., as a percentage of total charitable expenditures. For example, if in a given year a foundation made $1,000,000 in qualifying distributions and spent $100,000 on charitable administrative expenses, its ratio would be 10%.

The average administrative expense ratio among family foundations analyzed was 11%, whereas the average ratio among independent foundations analyzed was 15%.

 

Methodology:

The data set used in this study is comprised of information independently collected from the publicly available 2018 Form 990-PFs of 40 foundations: 20 family foundations and 20 independent foundations. The year 2018 was selected because it is the most recent year in which Form 990-PFs were available for all 40 foundations.

Classification as a family foundation versus an independent foundation is based on the composition of the board of trustees of each foundation in 2018. The investigation of familial relation between those board members and the original donor(s) is based on publicly available information from the foundation’s website, news articles and public biographies of the individuals. Furthermore, with the intent of capturing the best representation of private, non-operating foundations, all instances involving outlier operating circumstances (i.e., the execution of a “spend down” plan or other situations that may significantly alter typical spending practices) were excluded from the data set.

Findings:

The average administrative expense ratio among family foundations analyzed was 11%, whereas the average ratio among independent foundations analyzed was 15%. Thus, the family foundations analyzed in this study spend, on average, a smaller share of their total expenditures on administrative expenses compared to qualifying distributions than the independent foundations in this study.

The family foundation data set further illustrated a downward trend in the distribution of ratios — meaning that more of these foundations had lower expense ratios. The ratios among independent foundations were less evenly distributed and demonstrated no clear trend (see Figures 3 and 4 in the full report).

Ultimately, the data in this study do not suggest widespread misuse of foundation funds by family foundations for administrative expenses.