Making Philanthropy a Family Affair

William M. Yates

William M. Yates

September 5, 2018

Investing & Economy

A private family foundation may be right for you, if you wish to:

  • Take an active role in philanthropy
  • Make grants to organizations that support the people and causes you care about
  • Build a public legacy through a named giving vehicle
  • Share the philanthropic process with family members and future generations
  • Maintain control over grant decisions during your life and extend your charitable interests and values after your death
  • Receive immediate income tax benefits and, later, estate tax benefits
Arriving at home from a business trip several years ago, a well-to-do friend of mine, Ted R, was greeted at the front door by his wife, Caroline, who announced, “Ted, I’ve been thinking about something for a long time. I met with our lawyer while you were away, and he’s drawing up some papers.”
 
Initially stunned—and speechless--Ted was quickly relieved to hear Caroline explain that she had asked their estate planning attorney to prepare the documents to establish a private foundation, called the “R Family Foundation.”  Grateful for their good fortune, she wanted to give back to society by funding the Foundation with some of the wealth that she and Ted had accumulated over the years. A portion of the fund would be paid out annually to non-profit organizations in their community.

Caroline’s next surprise for Ted was her selection of “Advisory Directors” who would determine which non-profits would receive those benefits every year. She wanted each of their grandchildren between the ages of six and 21 to serve on the R Family Foundation’s “Advisory Board” and help choose a qualified charitable beneficiary for a portion of each year’s distributions. She believed this arrangement would foster good values among succeeding generations of the R family.
 
Today, the R Family Foundation is respected throughout its community for supporting an array of non-profit organizations and activities, and the R family grandchildren look forward to their sixth birthdays almost as much as they do the arrival of Santa Claus.
 

Sharing Wealth, Purpose, and Values Like Peter Buffet

 
A similar story is told by Peter Buffet, son of billionaire investor Warren Buffett, in his book, "Life is What You Make it: Finding Your Own Path to Fulfillment.” The book describes how he wound up being a "normal, happy" person, instead of a spoiled child of one of the world's richest people.
 
As a musician who also focuses on giving back to the world by working for his father's NoVo charitable foundation, Buffet advocates teaching your children values, rather than simply giving them everything they want.  "Economic prosperity may come and go; that's just how it is," he writes. "But values are the steady currency that earns us the all-important rewards."
 
The R family and the Buffetts are among a growing number of individuals and families throughout the U.S. who have established private family foundations to support the charitable causes dearest to them.  A 2014 survey by the Foundation Center counted more than 42,000 private family foundations throughout the U.S. with assets totaling over $400 billion. These foundations gave more than $25 billion each year to qualified charities, or about $600,000 each. 
 

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Is a Private Foundation Right for Your Family?

 
The answer to this question depends on your charitable inclinations and interests, your ability to segregate a portion of your wealth to fund a foundation or charitable trust, and your interest in involving your family in your philanthropic activities. Establishing a private foundation that includes family members, can provide direct income and estate tax benefits to you, while giving your family a sense of accomplishment in helping others and benefiting causes that you all consider to be important to society.
 
What differentiates a private family foundation from the other types of charitable organizations or trusts is its ability to impart your family’s unique values through their participation as board members or trustees and their influence on the selective distribution of benefits. No other form of charitable giving allows a family to retain this amount of power and influence. So it is not surprising that the government also has developed a considerable number of regulations for family foundations to ensure that their power and influence are not abused.
 
Should you choose to include family members in administering your foundation, you may find that these responsibilities unite your family across years, geographic locations, and life circumstances. Whatever the ages of your children, integrating philanthropy into your family life can nurture healthy attitudes about money, work, and living a fulfilling life journey. 
 
If you are interested in exploring how a private family foundation and other types of charitable trusts can help you meet your philanthropic, financial, and family goals, the Cambridge Trust Wealth Management team can provide additional information and assistance.
 
This article is for informational purposes only and should not be construed as investment or legal advice.