Family Foundations: What Makes Them Different

A family foundation is generally one whose assets come from a single family. However, there is no legal definition for a family foundation to distinguish it from other types of foundations. It is subject to the same state and federal rules and laws and must maintain standards of governance, such as regular meetings, keeping minutes and upholding a fiduciary duty.

The difference is the foundation becomes a family affair and may be an ideal vehicle to establish a legacy of giving that encourages younger generations to become involved in philanthropy. According to the Foundation Center, there are some 40,000 family foundations in the U.S. with more than $21 billion in assets.

A foundation is not just for the richest of the rich. Some 60 percent have assets of $1 million or less. But starting a foundation is not a decision to be made lightly. The IRS, among others, sees to that (this article has some of the legal requirements). Beyond the rules, though, there are some important considerations to take into account, which have as much to do with family dynamics as they do with what organizations to support.

Define a Goal. First figure out what you want to accomplish with a foundation within a family framework. It may be to provide a way for you or your relatives to be active in a rewarding field or to use the foundation as a vehicle to help your children gain a greater understanding of pressing world issues.  Some family foundations are established to honor a parent and carry on the work they were passionate about.

Narrow Your Focus.  An effective foundation cannot be all things to all people. Take time to match up what fields interest you most and where the needs are greatest. Only then can you determine—after examining your assets—what you have the scale to accomplish and where you can have the greatest impact. Drafting an effective mission statement helps toward that end.

Craft a Strategy. Maybe you want to confine your grants to nonprofits working in a certain community. Perhaps you have grander designs and want to help build medical facilities in underserved areas. Or you want to use your grantmaking as an advocacy tool. There are many strategies on which a philanthropic foundation can rest. Don’t feel a need to start from scratch. If there are already established programs in an area, consider supporting them or use their model to replicate their success. For bigger projects, the core strategy should always be finding a partner(s). You may not get all the glory, but you won’t have all the headaches if something goes wrong.

You also need to think about how much money and sweat equity you can commit. Be prepared to handle the legal and administrative requirements of a foundation. Otherwise, pay to outsource those chores or consider starting a hassle-free, donor-advised fund instead of a foundation.  But most important, be sure your family truly wants to be part of a family foundation.

Philanthropy consultant Julia Kittross, author of “So You Want to Be a Philanthropist: How to Choose, Set up and Manage a Successful Family Foundation,” that a family foundation will not be a panacea for warring children and parents who may be inclined to cease hostilities. Nor will it guarantee your descendants will continue to fund the same causes after you’re gone. And, notes Kittross, if you start a foundation, don’t assume your children want to serve on the board. Ask them first.

“The next generation is extremely busy,” Kittross wrote in a blog for the National Center for Family Philanthropy. “They are establishing careers, going to school, getting married, having babies. Donors are often at a point in their lives where they have the time to commit to hobbies, causes, and second careers. Young people just don’t always have this time.”

Then again, who does? Still, thousands of families have decided a foundation is one of the things that will keep them busy. They sense a higher purpose. They become emboldened. What was once deemed extraordinary is suddenly within reach. They believe they can make a difference. And it is all the more gratifying when all of that happens together—as a family.


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