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For families of means, there are plenty of reasons to establish a private foundation: tax savings, control over assets, and the ability to give back using a broad range of philanthropic capabilities, such as program-related investments and grants to individuals. But for many clients, the most important benefits of a foundation are to ensure that the next generation will be responsible stewards of their values and wealth.
The ideal training ground
One financial advisor I know calls a private foundation “an estate plan in action,” because the skills needed to run an effective foundation are identical to those required for the next generation to manage their inheritance. By learning how the foundation maintains its investments, conducts due diligence before making a grant, and measures its impact, heirs learn essential business skills. And by participating in group decision making, advocating for their positions, and resolving disagreements with other members, young people acquire the social skills that are key to leadership.
Beyond the acquisition of financial and business skills, many families of wealth are concerned that their success will kill their children’s ambition – especially if their wealth passes to their children before they have had a chance to develop sufficient maturity. For these families, a foundation is a perfect fit because it enables the next generation to participate in wealth and understand both its power and responsibility – all without taking control of it. By having a say in the foundation's governance and work, children witness the impact of their decisions and learn the value of money in ways no lecture can ever hope to match.
Foundation for a legacy of giving
When a family decides to establish a private foundation, it naturally occasions discussions about what it wants to accomplish with their charitable funds. These conversations can be a springboard for exploring the family’s priorities, offering a rare opportunity to uncover what matters most to individuals and what core values the family shares. Ultimately, the family can distill this conversation's fruits into an external mission statement for the foundation. However, this process might also give rise to an internal mission for the family itself.
Whereas the external mission details what the family wants to accomplish for others, an internal mission focuses on the family’s goals for itself. Many Foundation Source clients use an internal mission statement to articulate their intentions to strengthen family bonds, forge a distinctive identity, and optimize time spent together.
Connection to each other and future generations
It’s common for families to spread out all over the globe. Education, job opportunities, and marriages exert their force, pulling family members away from one another. For many families, the foundation becomes the glue that holds the family together, even when they live in different zip codes and time zones. Having a common cause and a formal vehicle for advancing it provides a “non-Thanksgiving” reason to meet regularly.
Finally, because private foundations can be established to exist in perpetuity, they can link the founders to future generations they will never meet. The foundation conveys the founders’ cherished values, hopes, and dreams from one generation to the next. And, as the foundation’s assets grow in a tax-advantaged environment, it can become a philanthropic heirloom of substantial worth, empowering each generation to embrace the family’s legacy and add to it themselves.
Hannah Shaw Grove is a senior executive at Foundation Source, the nation’s largest provider of support services to private foundations. The firm works in partnership with financial and legal advisors as well as directly with individuals and families. Ms. Grove is the author of two books on family offices – Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy (2004) and The Family Office: Advising the Financial Elite (2010) – and has conducted extensive quantitative and qualitative research with single family offices and multi-family offices over the past 20 years on how they structure, manage, protect and transition their assets.
About Foundation Source (www.foundationsource.com)
Foundation Source is the nation’s largest provider of comprehensive support services for private foundations. Its complete outsourced solution includes foundation creation (as needed), administrative support, active compliance monitoring, philanthropic advisory, tax and legal expertise, and online foundation management tools.
Now in its third decade, Foundation Source provides its services to nearly 2,000 family, corporate, and professionally staffed foundations, of all sizes, nationwide. It works in partnership with wealth management firms, law firms, accounting firms, and family offices as well as directly with individuals and families. Foundation Source is headquartered in Fairfield, Connecticut.
Read more articles by Hannah Shaw Grove
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
