March 30, 2010
6. Be wary of self-dealing. Foundation assets cannot be used for the personal enrichment of foundation managers, either through excessive salaries or fees paid for products or services, and it’s the gray areas that cause problems, says Kidder. “It’s clear that you can’t make a grant to a theater company in exchange for season tickets, but making ethical choices is not always as simple as separating right from wrong,” he says. “For example, what if you want to hire your cousin? He might be great guy and qualified for the job, but the hire could be classified as self-dealing. You could make an argument either way.”
7. Engage the next generation. “A family foundation affords clients the opportunity to educate their children or grandchildren not only about finances, but family values,” says Brett S. Ellen, CFP®, founder and president of American Financial Network in Calabasas, California. “If you teach the kids while you are alive, they can carry on with your family’s mission after your death.”
In fact, Ellen’s young sons play a big role in the non-profit foundation TKO (Turn Kindness On) Helping Hands, which the family founded in 2001 to encourage children to perform volunteer community service. TKO recently expanded its reach from feeding the homeless in downtown Los Angeles and Santa Monica and participating in local beach cleanups to visiting poverty-stricken areas of the world’s most beautiful destinations to donate money, food, toys and other supplies. Ellen visited orphanages in Bali with his family last summer. “Through TKO, we’re teaching our children that supporting a cause involves an investment of time as well as money. Those who actively engage in the philanthropy as children and young adults will be less likely to be one of those well-intending donors who are eager to support a cause but just want to write a check.”
Bangser says a family’s satisfaction with a foundation hinges on the answers to three questions: How engaged are family members, are they having fun, and are they making the impact they want? “The more an advisor can do to reduce time spent on a foundation’s administration, the more time families have to enjoy their philanthropy,” he says.
Kidder adds that providing education about potential pitfalls and suggesting additional professional resources can reduce the odds that the foundation becomes an administrative headache that reflects negatively on the wealth advisor.
“Advisors should seek to free families to concentrate on changing the world for the better,” Kidder concludes. “I tell families to expect some stress with the workload or family dynamics, but that getting together once a year to figure out how to help others is better than getting together for Thanksgiving and talking about the last Thanksgiving.”
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