When working with wealthy clients, we are often asked as to whether a Family Foundation might be a good idea for legacy planning.
Family foundations can be a powerful tool for achieving philanthropic goals and preserving family legacies. However, they also come with a set of dos and don’ts to ensure they are effective and sustainable. Here are some dos and don’ts for family foundations:
Dos:
Do establish clear governance structures: A family foundation should have clear governance structures in place to ensure that decision-making is fair and transparent. This may include a board of directors, bylaws, and policies and procedures.
Do define your mission and goals: Define a clear mission and goals for your family foundation. This will help ensure that your philanthropic efforts are focused and aligned with your values and priorities.
Do involve family members: Involve family members in the foundation’s activities, including serving on the board or participating in grantmaking decisions. This can help build family unity and ensure that the foundation’s values and goals are preserved over time.
Do seek professional advice: Seek advice from legal, financial, and philanthropic experts to ensure that your family foundation is structured and operated in a way that is compliant with applicable laws and regulations, and that your philanthropic efforts are effective and impactful.
Do evaluate and measure impact: Regularly evaluate and measure the impact of your family foundation’s activities to ensure that they are achieving your philanthropic goals and making a meaningful difference.
Don’ts:
Don’t engage in self-dealing: Family foundations must avoid engaging in transactions that benefit family members or insiders, as this can jeopardize their tax-exempt status and credibility.
Don’t neglect legal and financial compliance: Family foundations must comply with all applicable laws and regulations, including tax laws and reporting requirements.
Don’t lose sight of your mission and goals: Family foundations must stay focused on their mission and goals, and avoid getting sidetracked by personal agendas or distractions.
Don’t ignore succession planning: Family foundations must have a succession plan in place to ensure that leadership and governance are transferred smoothly from one generation to the next.
Don’t overlook the importance of transparency: Family foundations must be transparent in their operations and activities, including making their financial information and grantmaking decisions publicly available.
By following these dos and don’ts, family foundations can be effective and sustainable tools for achieving philanthropic goals and preserving family legacies.
–Jeffrey D. Katz, Managing Partner
