private wealth

Preparing Your Family Foundation for Future Generations

Preparing Your Family Foundation for Future Generations

Private foundations have gained popularity among families with significant wealth for many reasons. In addition to offering significant financial advantages, such as estate and capital gains tax savings, family foundations create a structure for directed charitable giving and an opportunity to foster an enduring family legacy.    

Most private foundations are established with the intent of unifying a family’s philanthropy long term. By the third generation, however, foundations often find it increasingly difficult to maintain their mission because of diverging interests or lack of leadership continuity. If your family is considering or has already established a private foundation for your charitable endeavors, there are steps you can take now to ensure that your philanthropy stands the test of time.

Treat the Foundation Like a Business

Ensuring the ongoing continuity of a family business takes planning. Successful intra-family business transitions often involve the family working with an advisory team. Together, they develop and document a succession plan for their family enterprise to ease the transition to future generations. While a family foundation is a charitable entity, the same level of proactive planning should be applied to ensure generational continuity of operations and leadership.

Case Study: Read about a family trucking business that worked with Private Wealth to evaluate and map a comprehensive plan for transition to the next generation. 

When is the best time to establish a succession plan? Ideally, the founding family member(s) will consider and develop a roadmap for future leadership as part of the formation documents. The initial members of the family foundation board would then put additional structure around the education and development of family members to become directors in the future. If your family foundation doesn’t yet have a plan for leadership succession in place, use the suggestions that follow to start building a plan now.

Where to Start: Document Your Preferences for Governance

A well-done governance structure provides a clear roadmap to help future board members make efficient, productive decisions, while offering flexibility to adjust for inevitable changes down the road. Many foundations suffer under the heartache of ongoing debate about how to best manage the organization. When foundation board members feel a greater sense of productivity, joy and purpose from their work, there is a much higher likelihood the foundation will succeed. 

A solid foundation governance plan should include:

  • A mission and vision statement.
  • A donor legacy that outlines founder goals, values, interests as well as the geographic scope of philanthropy.
  • Intentions for the lifespan of the foundation—is the desired timeline measured in years, decades or in perpetuity?
  • Details on the optimal board size, board terms and meeting expectations.
  • Instructions for board composition: Who is allowed to be on the board? Is equal representation from all branches of the family necessary? When can children take a position? Will spouses and partners be allowed to participate, and how will instances of divorce be handled by the board?  
  • Guidance for how the board will communicate decisions to non-board family members and whether there are roles that can engage those family members.

Family foundations vary in size and complexity, which will influence the amount of detail each of these considerations receive within your foundation’s plan.  

 Where to Go from Here: Prepare the Next Generation

Now that the tangible rules for governance are in place, the next step—and perhaps the most important—is a thoughtful plan to prepare the next generation of board members. All too often, family foundations flounder when family members are placed in positions of leadership without first receiving sufficient preparation and mentorship.

When a family foundation is intertwined with a successful family business there can be additional challenges. If not handled appropriately, this may create another point of friction because the boundary lines blur between the roles of family member, foundation director and an individual’s position in the business.  

What qualities constitute a good family board leader? When you are considering a new member for board leadership, look for a well-rounded set of qualities. Future board members will be most effective if they bring financial or business experience, as well as a personal interest in the mission and vision of the organization. They need to be comfortable asking constructive questions about the organization’s operations and direction. And ideally, they possess effective communication and relationship-building skills to ensure a collaborative and productive decision-making environment. 

Involve Young Family Members as Soon as Possible

A family foundation can serve as a training ground for hands-on learning in finance, governance, communication and family values for younger family members. Engaging these individuals early and often in open conversations and education about the family’s philanthropy fosters their connection to the foundation, which is critical to the vitality and strength of the organization.

Use these ideas to help younger family members develop an interest in philanthropy:

  • Take your children along to charity projects and observe what causes they connect with most.
  • Invite grade-school-aged children to make a request to the family for donations for their favorite charity.  
  • Depending on the size of your family foundation, consider setting up a junior board, where younger family members can participate in a grant process.
  • Create mentorships or internships, where a younger family member can pair up and learn from a non-parent board member.
  • Create a matching gifts program within the family foundation to enhance and encourage the charitable giving of younger family members.
  • Outline a process for training and onboarding new board members. While younger generations can bring skill and enthusiasm, they may not have as much experience with board governance and philanthropy. They would likely benefit from mentorship with a departing board member for a year.  

Get on Track Quickly with Help from an Outsourced Family Office

If your family office has not yet undertaken the desired governance and succession planning work, an outsourced family office can provide relevant and impactful guidance. Private Wealth Asset Management serves as a resource to families and institutions, helping to foster legacies that span generations. Our team, including specialists in philanthropy, wealth planning and business transition planning, can help your board of directors navigate the complexities of multigenerational transitions of either a foundation or family business. We have extensive experience mapping pathways for successful organizational continuity, setting realistic objectives and timelines, and serving as a respectful and trusted family advisor.

Learn more about how Private Wealth can help with your foundation succession planning. Connect with an advisor and schedule a strategy session today.

Investment Advisory Services offered through Private Wealth Asset Management, 411 6th Avenue SE, Suite 360, Cedar Rapids, IA 52401. 888-611-7926. This report is being provided for informational purposes only and should not be used as the sole basis for financial decisions, nor be construed as investment advice designed to meet the particular needs of an individual’s situation. Contact your investment advisor to discuss your specific goals and objectives.

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