Generational Philanthropy – Explore Private Foundations
Abraham Maslow was a psychologist known for creating a theory called the Hierarchy of Needs. This model displays the progressions of human needs, beginning with the basics such as food, water, air, sleep, etc. The next stage, Safety, includes family, health, home, employment, etc.
With each step, the focus shifts from internal to external, or from meeting one’s own needs to assisting others. The top of the model, Self-Actualization, is where people use innovation and creativity to elevate others and solve problems.
The desire to help others is deeply ingrained in most people. In fact, some studies suggest that giving to others is central to human life. The research says giving is similar to eating and breathing—we must do it to survive.
Teaching children the importance of community involvement and giving back is essential. Parents work hard to make sure their kids get a proper education so they can grow up to be productive members of society. Beyond the importance of writing, science, and math, civic engagement and philanthropy are key to success.
Philanthropy Starts Early
Compassion and a desire to help others is learned at an early age. Research shows that around two years of age, children start to display genuine empathy, understanding how other people feel. A 2011 study (van Deth) demonstrated how the basic social concepts that are formed in children before adolescence remain stable throughout adulthood.
Like most parenting, lessons are better “caught” than “taught.” Parents who model generosity and talk about the importance of giving back help their children to be involved in their communities. Parents can encourage critical thinking by teaching children the root causes of important issues and presenting ways to take action.
Establishing a private foundation is a great way for families to support the people, places, or things that are most important to them. Focused giving around a specific cause or geographic region can be used to preserve a family name and reputation.
A private foundation is a tax-exempt 501(c)(3) organization. The term includes corporate, independent, and family foundations. Family foundations typically derive their funds from members of a single family. Members of the family often serve on the board of directors and play an important role in deciding how the funds will be dispersed.
As families explore the idea of starting a foundation, it can be helpful to determine:
What’s your goal? As described above, the decision to start a foundation may relate to preserving your family’s legacy within a certain community. Or perhaps you see a need to support a specific industry such as nursing or children’s education.
It’s also important to consider long-term goals. Do you want the foundation to exist in perpetuity, or do you see an end to its need in 20 or 30 years?
How much involvement do you want to have? Some families want to play an active role in governance and grant making, while some have very little interest in those types of activities. The amount of time you wish to invest will help shape the structure of the organization.
In the early stages of formation, you’ll have to select who will sit on the foundation’s board and what role each person will play in decision making.
Trends in Family Giving
Some families are rethinking how they organize their philanthropy.
Years ago, most family foundations were connected to estates and the wishes of founders. The focus of giving was often connected to religious institutions or an alma mater. Today’s donors are more outcome-based and are challenging legacy notions. They are looking for measurable impact.
Change in Focus
Over the past few years, many foundations have moved beyond “How can we help individuals?” to “How can we change the system?” at a policy level. More expansive in view than simply grant making, this often includes hands-on advocacy and scaling impact.
Another shift is in distribution. There is movement away from arbitrary payout to responsive payout, i.e., making decisions based on needs and opportunities. For example, many foundations altered their funding priorities during the global pandemic in response to urgent needs.
If you’re considering starting a private or family foundation, BKD can help. Our team of trusted advisors can guide you through the entire process, from tax issues and IRS compliance to establishing a board and writing policies/procedures.
For more information, reach out to your advisor or submit the Contact Us form below.