Family Foundations: The Why, Who and How of Impactful Giving
Philanthropy, private foundations, charitable giving or charitable remainder trusts… the options are many. Often, families of significant means see giving back to the community as a duty or responsibility – and one they don’t take lightly.
The options for philanthropic endeavours may be many, but how does one ensure their contributions are making the biggest impact? Will they last? Has the giving strategy considered inheritance and estate planning? And will the future generations care about the causes committed to today?
Our Richter Family Office Partner (RFO), Mindy Mayman, shares her insights on why families should consider starting a foundation – one that not only ties into and reflects their values, but also transfers said family values to the next generation while benefitting the community at large. Win-win.
Why would a family need a foundation? What is the added value?
Mindy Mayman (MM): A Foundation is typically the reflection of a family’s values: the values they want to pass on from generation to generation. Families who have had financial success often feel a deep desire to give back to the community in some way. And establishing a family foundation is one way to do that. It’s also a great way to teach future generations about the family values and pass on a legacy that’s not just about generating wealth but of sharing wealth. It’s also an ideal tool to engage the next generation. At RFO we very often recommend that young adults, and even teenagers to a certain extent, be involved in the foundation in order to start learning lessons about investing, finance, managing money or budgeting. One of the best environments to teach them important skills and financial know-how is through the family foundation. Reason being, is that the money in the foundation will never “belong” to them but rather is to be shared with others. Therefore, the family foundation allows for personal growth with no risk of creating entitlement in younger family members. The family foundation can be a great tool for families to educate the next generation on various topics such as managing a portfolio, generating income, choosing what charities to support, doing due diligence to understand if the organizations are reputable, learning how to meet your commitments, and more.
When should a family start to consider investing in the creation of a family foundation?
MM: Families can be philanthropic in many ways, so it’s important to establish first if the family foundation is right for them and second when is the right time to start. Typically, families might consider investing in the creation of a family foundation when they have money that they want to put aside, but no specific ideas on how to allocate it to philanthropic causes. Practically speaking it’s often when a family has a liquidity event, for example selling their business or part of their business and comes into more money. This represents an ideal time to start a foundation both because the family has the money and because it’s good from a tax perspective.
What’s the difference between a family foundation and charity?
MM: Charity refers to making donations to various organizations to support the organizations, without necessarily considering the strategic aspects involved in philanthropy. Having your own foundation allows you to think about your philanthropy strategically. At its core, strategic philanthropy is about deciding what causes are important to you and how you want to go about supporting them. What will your foundation stand for? Which causes will your foundation support?
When you build a family foundation you can have a clear direction and mission. You can make the rules. Should you also give time to the organizations you support, or should involvement be strictly financial? Should the organizations meet certain criteria to receive your support? Should those you support all have a theme or cause in common? It’s when an individual or family starts thinking about philanthropy in a strategic way, that the importance of establishing a family foundation becomes apparent.
Charity = making a financial donation to an organization
Philanthropy = deciding what causes are important to you, and supporting those causes strategically
Do they need a foundation?
MM: Not necessarily, after all each family is unique. At Richter Family Office (RFO), we help families evaluate the option that’s best for their needs and philanthropic goals. Another option to consider is a donor-advised fund. We might refer our clients to the Foundation of Greater Montreal, the Jewish Community Foundation of Montreal*, the Toronto Foundation or the Jewish Foundation of Greater Toronto to name a few. These are organizations that exist to facilitate philanthropy. They help donors create a fund that is typically invested through said organizations to the cause of the donor’s choice. This allows donors to select the causes or charities they wish to support, without all the administrative tasks that are involved in making a donation. These organizations can also connect donors with charitable foundations associated with specific causes. This way they can help families who know they want to support a specific cause – say child hunger, for example – but don’t know which charities they should support or don’t have the time to do proper due diligences themselves. These organizations are also great because they allow the family to donate to any eligible cause – they’re not restricted to any type of sector or religious affiliation. They represent a good alternative if the family’s sharing capital is still modest or as an interim step before starting a family foundation.
What are the three most important things to consider when creating a family foundation?
MM: When creating a family foundation there are many aspects to consider. But three stand out:
- what it stands for;
- the strategy of it; and
- the governance behind it.
The first one sounds easy, but it can be a little tricky. What will your family foundation stand for? It refers to the mission and the values of your family foundation. The core of the foundation if you will. Figuring out the mission naturally leads to questions about its capacity and its operations. What rules will define your foundation? What type of organizations will you support? Defining a clear strategy can help you reach your philanthropic goals.
Another aspect to consider is the governance. Governance can vary greatly depending on the size of your foundation. Will there be a board of directors? Will the family be involved, or will you bring outside directors into the family foundation? You might also consider inviting younger family members to join, so they can learn about the mission and the technical aspects of running the family foundation. There are a number of questions to consider, and they require extensive discussion. Offering detailed advice to guide these discussions and help build and manage family foundations is one of the many ways in which we assist families during this process.
How can we involve the next generation in the family foundation?
MM: The beauty of a family foundation is that you can involve younger family members. When they are young you can teach them the value of sharing. The value of sharing is something that can easily be transmitted by working together as a family. When they are old enough to understand financial concepts, you might introduce them to portfolio management or budgeting – it’s a great place for them to learn lessons of financial literacy. The family foundation is also a great way to teach younger generations about commitment. It can be about educating them and transferring the required knowledge to either take over the business or to instill a proper personal financial code of conduct.
One of the key aspects to consider when trying to engage the next generation is to discuss what causes are important to them as you build the strategy. If you are intending for the foundation to continue beyond the first generation, the strategic goals of the foundation must reflect not just those of the founder but of the next generation as well. If we look at it statistically, we know that younger generations tend to be more focused on environmental and sustainability causes, as opposed to more “traditional” causes, such as poverty or hunger. That’s not to say that some causes are more valid than others, or that younger generations aren’t interested in ending world hunger – it’s about reinforcing that their voices matter in the foundation and backing it up with actions. One way to do that is to involve them in the decision-making process early on.
How do you measure the success of a family foundation?
MM: It all depends on the family foundation’s objectives. We can easily measure and keep track of financial statements to give an accurate measure of donation successes. But when it comes to measuring the success of a family foundation, more and more families are interested in a more qualitative approach. Impact investing looks for ways to measure not just the financial statement in dollars but also in terms of social responsibility. This helps ensure that donations are being made to responsible or upstanding organizations, charitable or otherwise. Families can choose in what capacity their donation will be used by various organizations and ask for key performance indicators as well. At RFO, we can help families define which performance indicators would be best for determining the success of their foundations and giving.
How does Richter Family Office assist families in managing their foundation?
MM: Setting up and managing a family foundation requires many discussions between family members. At RFO, we help establish and preserve the philanthropic strategy of a family foundation. We also assist families with portfolio management, sustainability, governance and tax advisory to help navigate the decision-making process. We can also connect our families to the organizations in the community that can help scope out the best charities to suit any causes. We help our families through this process because we understand the importance of giving back to our community.
Anything else to add?
MM: Charitable giving is often an expression of your family’s core values. It represents not only who you are but also what you aspire your legacy to be. In our approach, we make sure that every angle is covered, every question is answered, and all the details are in place so that you can focus on giving back in a way that makes a difference, that is right for you and your family, and represents your legacy.
As a partner with Richter Family Office, Mindy Mayman advises families and individuals of significant means; helping them design and implement plans to achieve their financial objectives. By getting to know the individuals at the heart of the family, Mindy guides them in quantifying goals, resolving familial issues and determining the most appropriate asset allocation and investment solutions. A skilled financial advisor, Mindy crafts and delivers advice that is practical, understandable and relevant to the objectives of ultra-high-net-worth families.
*Danny Ritter is President of the Jewish Community Foundation of Montreal, and Mindy Mayman is a member of the Jewish Community Foundation of Montreal Investment Committee.