How to give through a private non-operating foundation for your philanthropy

One of the more popular philanthropic vehicles chosen by donors is the private non-operating foundation. “Non-operating” simply means that your foundation’s primary goal is to make grants to nonprofits that are not run by your own programs. The largest and most well-recognized foundations—Ford, Gates, Packard, Rockefeller—are structured this way. But so are tens of thousands of others, many of them very small. 

Here are a handful of tips to smooth the process of grantmaking through a private non-operating foundation: 

• Know your beneficiaries: Investigate each potential grant recipient. Familiarize yourself with its mission, leadership, financials, and programs. Make site visits. Depending on your level of commitment to the organization, get involved in it by attending programs and functions. Trust your instincts. 

• Make short-term commitments (or long-term ones in short segments): All nonprofits experience change over time. People come and go. Mission statements shift and drift. Organizations might even shutter altogether. That’s why making shorter-term commitments—rather than long-term endowments—in your grantmaking is one of the best steps you can take. Making a long-term commitment to an organization while restricting your gift to annual or biennial grants based on performance gives you maximum leverage in grant compliance. 

• Create a suitably detailed grant agreement: Depending on the nature of your gift, put a gift contract or grant agreement in place. There are many examples of gift contracts, some more complicated than others. Avoid micromanaging, but ensure that both parties have a clear understanding of expectations, restrictions, and reporting requirements. Grant agreements can also outline in advance a means of resolving disputes. 

• Consider an intermediary organization: You may consider making your gift through an intermediary organization that will serve to enforce your intentions over time. A third-party organization can ensure compliance standards in your absence prior to disbursing funds. Likewise, you may consider establishing contingent beneficiary organizations that act as backup grantees if the intended recipient fails to live up to the terms of the original gift agreement. 

• Realize the limitations of grant compliance: Even with a grant agreement in place, once you make the gift, the money is no longer yours. It’s far easier to create a good working relationship with an organization before making a gift than to try, after the fact, to force them to comply. It can take much time, even years, to understand what you can realistically achieve through your grantmaking within a given field or with a particular organization or group of organizations. Many donors make large gifts early on that they later come to regret. Take time to learn about the field in which you are working, the people and institutions doing the work, and try to formulate realistic expectations grounded in experience rather than responding to slick marketing brochures, attractive websites, or utopian ideas about what your gift can accomplish. 

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Should you choose a private non-operating foundation for your philanthropy?