Equally daunting, families often find themselves bogged down in swamps of paperwork, navigating tedious IRS compliance filings and monitoring grant recipients to make sure that their accounting is accurate and transparent. Currently, 12 state legislatures are considering acts that would apply Sarbanes-Oxley-style corporate governance laws to charities. Whether or not states enact this legislation, the entire nonprofit sector is feeling pressure to better monitor itself in the wake of accounting and conflict of interest scandals. Moreover, bond-rating agencies and lending institutions have increased scrutiny of foundations’ financial information.

“A NUMBER of folks we have known with family foundations are trying to get out.”

“A number of folks we have known with family foundations are trying to get out,” admits Jane Williams, CEO of Sand Hill Advisors, a Silicon Valley wealth management firm that specializes in family foundations. Wealth managers say we may find it far easier to give money through a donor-advised fund. Community foundations or financial services sponsors manage these funds for us by accepting any sum of our capital, large or small, along with our instructions as to which charities we wish to support. The managers invest the sweat equity on our behalf, administering the funds, preparing financial statements, filing tax reports, ensuring IRS compliance and arranging recipient audits.

They also allow us to avoid shouldering the cost of running our own foundation, which typically consumes 15 percent of our annual payouts to charity (which themselves must comprise a minimum of 5 percent of our endowment each year). Because of these costs, experts advise that it makes little sense to start a family foundation with less than $10 million; it begins to make sense when we plan to endow it with about $20 million.
Despite myriad obstacles, many of us continue to find the idea of launching a family foundation attractive, especially if we want to attach our family name to our vision. Before we do, we must ask ourselves an often-uncomfortable question: Does our family get along well enough to carry out this vision?

Fractious Families
In a family divided politically or emotionally, devising a foundation with a clear mission that speaks to the passions of all and offends the views of none is a monumental challenge. We have all heard stories about conservative grandparents who wish to establish a family foundation, with the caveat that their children and their children’s children never donate money to liberal groups. But even a family of varying persuasions can coalesce if the founding generation avoids making one specific cause its main priority. The successful foundation will instead focus on building audacious philanthropic projects.

“If the goal is engaging future generations in the philanthropic process, you have to build that into the foundation mission,” says Peter Karoff, founder and chairman of the Philanthropic Initiative, a not-for-profit advisory firm in Boston. He believes that the overblown intent of some founders can be a roadblock, and suggests that the founder be willing to build in a certain amount of flexibility by setting guidelines with wiggle room for future generations. “Does it really matter, for instance, that some people say Henry Ford’s original intentions went awry?” Karoff asks, referring to the founding Ford’s modest, civic-minded foundation, which has evolved into a global human rights powerhouse.

Although the option still exists, few families set up an institution as a foundation trust, which allocates money according to the founder’s intent, as stated in a binding document. “Picture a trust from the 1880s set up for the welfare of carriage horses—this is a true story,” recalls Karen Green, managing director of Family Foundation Services at the Council on Foundations in Washington, D.C. “When the cause becomes obsolete, the heirs have to go to court to determine where the founder might have wanted the funds to go. So they will need a court order to give money to, say, the Humane Society.”

It is now far more common to design a foundation as a nonprofit corporation, thereby enabling the board to vote on where the funds should go. However, if we want to avoid the possibility of a foundation becoming a self-sustaining institution that eventually slips away from our family’s control (as with Ford Foundation), we can instruct our children or grandchildren to dispense all of its assets within their lifetimes. Many founders today design their foundation to spend its endowment within 20 to 30 years—as Bill and Melinda Gates are attempting to do with their institution’s emphasis on AIDS treatment. This enables the foundation to address large projects in need of vast funding. Fortunately, we do not have to make this decision at the outset; foundation spending strategy is flexible.

Leading by Example
For Susan Ford Dorsey, instilling a legacy of giving in her son is more important than the beneficiary of the family’s gifts. In 1995, she set up a foundation with her first husband, Tom Ford, the developer who turned Sand Hill in Menlo Park, Calif., into a tony haven for the financial services industry. Tom died in 1998, and Susan, now remarried, employs the $50 million foundation to demonstrate to their son, Tommy, now 10, the importance of giving back to the community through the grants she makes to inner city schools and children’s health programs. But she has no plans to give in perpetuity. “I’d be disappointed if Tommy decided to run the foundation,” Dorsey admits. “I’d like to see him support causes, but I want them to be his own causes. If children get the message that mom and dad’s way is the only way of doing philanthropy, the whole purpose of philanthropy is missed.”

Jim Self handled his family foundation differently. He not only inherited one of the largest textile manufacturing companies in South Carolina, but also control of the Self Foundation, which his father had founded in 1942 with a broad mandate to fund health care and education. The younger Self decided to turn the foundation over to his four grown children, and scheduled a retreat to determine the future of the organization. “But he said he was not going,” recalls Frank Wideman, executive director of the foundation, which now has an endowment worth approximately $38 million.

The Self siblings spent a day and a half meeting in Pinecrest, N.C., with Joe Breiteicher from the Philanthropic Initiative facilitating their sessions. By the end of the retreat, they had agreed to fine-tune their grandfather’s guidelines. “They felt that giving directly to universities meant [they] lost control of the donation,” says Wideman. Instead of making outright gifts, they focused on specific programs they wished to create with their money. They recently funded a curriculum for Montessori education at Lander University in Greenwood, S.C., and a major research institute, the J.C. Self Institute of Human Genetics at the Greenwood Genetic Center, dedicated to research on the causes of mental retardation.

TOP VIEW Jittery markets, rising costs and swamps of paperwork can dampen our enthusiasm for starting our own foundation. But those of us with a passion for extending our family’s vision and legacy beyond our own lifetimes may find the results gratifying.

These types of meetings are crucial to a smoothly run foundation. For example, family meetings can be venues for agreement on nettlesome questions such as the size and nature of the administration. (A start-up of significant size commonly requires a staff of two.) Many families find that paying the salary for an executive director (part time or full time), who manages such duties as setting budgets and screening grant proposals, and possibly also hiring an office administrator, frees family members to concentrate on more compelling activities: networking with donors, examining prospective grantees, making site visits and focusing on the greater vision.

Whatever the budget and structure, launching a family foundation requires long hours and a talent for managing people, both inside and outside the family, in order to hew them to our strategic vision. We can assign some of the work to consultants and executive directors. But the vital factors that we can never delegate are our family’s mission and our requisite passion for surmounting social problems.