Establishing a foundation is relatively easy with the help of good advisors. But building a family foundation that engineers long-term impact and engages multiple family members takes vision, strategic planning, and a commitment of both resources and time. The more thought you can give up front to structuring a foundation that fits your goals and circumstances, the more likely it will be to achieve those goals—with fewer costly headaches. While there is a long list of to-dos to tackle in a foundation’s first year, here are some crucial items that you should consider from the get-go.
1. Determine who you want to be involved in the foundation over time and how you’ll involve them in making decisions
Taking the time up front to think through the anticipated lifespan of your foundation will help you determine who you will need to engage in the foundation’s work. Working with a family at a board room table while also seeing them at the dinner table can offer both challenges and opportunities. For this reason, designing a thoughtful governance structure up front that is able to evolve with your family can alleviate conflicts later on. Also, establishing collaborative decision-making policies and procedures in conjunction with clear timelines and roles and responsibilities can be vital to ensuring smooth operations. For example, will your foundation make decisions by majority rule or consensus? Once you decide on decision rules, ensure your bylaws reflect them and document procedures in appropriate board governance policies so they are clear to the whole family.
2. Understand compliance requirements and designate someone to manage them
While not the most fun or interesting aspect of launching a foundation, compliance cannot be overlooked, since private foundations are subject to the Internal Revenue Code and can face severe penalties in the event something slips through the cracks. Your board is responsible for ensuring that the foundation is fully compliant with federal, state, and local rules and regulations, and that all required registrations are up to date and filings are submitted on time. Lawyers and accountants do not always have significant expertise in private foundation work and the specific regulations of each state, so it is incumbent upon your foundation to understand and manage all of the requirements specific to your circumstances and location.
3. Protect yourself and your board in the event that something goes wrong
Directors and officers (D&O) insurance provides financial protection by covering costs—defense, damages, or settlements—for the directors and officers of a foundation in the event of lawsuits in conjunction with performance of their foundation duties. Because directors and officers can be held personally liable for their decisions as foundation leaders, we recommend all our clients maintain appropriate levels of D&O coverage.
4. Develop your networks to support learning
Having significant resources with which to impact causes you care about is a huge gift, but it comes with its own challenges. Connecting with other individuals and families that have navigated these waters can be enormously helpful and an ongoing source of support and motivation. Additionally, peer funders can help you learn more about the community or issues you’re funding and allow you to increase your impact by making the most of their knowledge, experience, and relationships. To build networks in your local community, local grant-maker affinity groups, giving circles, and community foundations can be invaluable resources.
5. Find the right partners and resources
Many philanthropists underestimate the complexities of launching a foundation and doing it well from inception. Bringing on partners who can manage the foundation allows you to focus on the aspects of philanthropy that you find most exciting. Finding reliable resources can also be a lifesaver.
Launching a new foundation should be an exciting and rewarding time for you and your family. If you are thoughtful and proactive about the considerations above, you can both reduce your stress and position your foundation for success.
Betsy Erickson provides strategic guidance and operational support to Arabella’s family and individual clients. She also works to enhance board governance structures and engage next-generation family members in their family foundation’s work.