Private foundations are an excellent way for affluent individuals and families to use their wealth to create good in the world through philanthropy.
Navigating the world of private foundations—independent legal entities that typically give donors a high degree of control over their charitable giving efforts—can be tricky, and even the very wealthy sometimes overlook important issues related to setting up and running a private foundation.
When wealthy individuals set up private foundations, they usually have a philanthropic agenda—commonly referred to as donor intent—about which charitable causes they want their wealth to support. That donor intent can span the gamut from cancer research to an alma mater to various political causes.
But over time that donor intent can be lost, and the foundation may start supporting causes that are out of line with the donor’s wishes.
One way to prevent divergence from donor intent is for the creator of the private foundation to clearly define their philanthropic principles when they are still in personal control of the foundation. Two ways to help ensure charitable intent is followed are having a mission statement and choosing the right staff.
It’s extremely important to have a mission statement that clearly defines your philanthropic goals and values and specifies the charitable causes you favor and the ones you do not want to support. The more you can effectively communicate what you expect your private foundation to do when you are no longer calling the shots, the more likely it is that your charitable agenda will be carried out.
Tips for creating a philanthropic mission statement:
- It’s best to incorporate your philanthropic mission statement into the founding documents of the private foundation so that others are explicitly aware of your desired charitable direction.
- Be specific—the better you describe and delineate your philanthropic agenda in your mission statement, the more likely it is that your private foundation will give your money away in accordance with your wishes, even after you’re gone.
- Communicate your mission statement to family members, trustees and staff of your private foundation, and anyone who is now or may in the future be involved with your private foundation.
- Don’t be afraid to refine or refocus your mission statement over time to reflect changes in your interests, beliefs, and priorities, and to reflect the outcomes of your giving.
- Make sure your mission statement is well written, clear, and precise. Avoid ambiguity and confusing language and spell out your wishes as exactly as possible.
- Consider including your reasons for establishing a private foundation, including the ways in which your foundation is an extension of your own private values and objectives. A statement that includes aspects of your past and personal motivations in addition to the mission itself is sometimes called a legacy statement.
- Consider including a video of yourself explaining your mission and specifying the types of grants you support.
- You can also include a giving diary with details of the grants you’ve made and the reasons behind them to serve as a guideline for future giving.
Trustees and Staff
Carefully choosing trustees and staff who share your philanthropic views can help ensure your wishes and preferences will be followed, because donor intent is more likely to be preserved when people involved in managing the foundation are in sync with your own philanthropic principles.
Tips for choosing the right trustees and staff for your private foundation:
- Choose staff and trustees who have strong character and share your worldview and commitment to the causes you support.
- Obviously, their views aside, everyone you select should be highly competent and experienced to enable them to effectively put your views into action.
- A good way to evaluate the quality of trustees and staff is to work with them as you make grants from your private foundation to see how they perform on the job.
- Consider a method for setting up a board of directors and determining how future board members will succeed current board members, and think about adding age diversity into your board so the turnover doesn’t happen all at the same time.
While these tips apply to philanthropic foundations, they can also be used to guide charitable donations made through a charitable trust or donor-advised fund. Regardless of how you give, it can be helpful to understand and communicate your charitable expectations and the principles behind them. That way, you remain clear on your own objectives and communicate those objectives to the people who may one day be required to make decisions for you.