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By Liza Horvath


Family Foundations


Achieving success is not done in a vacuum and, in recognition of this fact, most successful families make a point of giving back to their communities and other organizations that help those who are less fortunate. To these families tithing, supporting favorite charities and otherwise sharing their treasure is vital - they could not imagine withholding such support. Some aging parents, however, wonder how they can instill this commitment to philanthropy in successive generations. They worry that if money is not earned that the values and strength of character that are built while earning significant wealth will be lost on generations that follow because inherited wealth does not always bring with it the requisite experience necessary to understand and respect the way that money works.


We know that some of those with inherited wealth suffer from low self-esteem and even guilt stemming from receiving money they have not “earned.”  These feelings can manifest in unhealthy ways – gambling problems, lack of discipline or direction, drug or alcohol addiction.


What if there were a way to communicate the importance of giving back, instill respect for inherited wealth and also provide a financial education to your children and grandchildren?   Well, there may be. Among the many “giving tools” available to successful families, which include charitable trusts and donor-advised funds, the family foundation stands alone in the extensive teaching opportunities it can provide.


A family foundation is a trust or a corporation formed for the purpose of supporting not-for-profit organizations or providing scholarships. The foundation is primarily funded with family donations and is formed around a mission statement created by the founders. For example, “The Smith Family Foundation is committed to providing scholarships and educational opportunities to elementary through college age students with the primary focus being for those seeking a career in science, math or engineering.”


In our example, the Smith family would involve their adult children in the “governance” of the foundation which would include an initial meeting of the parents, children and perhaps with the family’s trusted advisors. A practical, frank discussion would occur about the organization’s goals, year to year maintenance obligations and the factors to be considered in granting scholarships and support. Directors would be elected to lead the foundation and by-laws adopted for ongoing governance.  


Because foundations are required to give away only 5 percent of the corpus each year, this charitable vehicle provides an excellent teaching platform. Children learn about the prudent management of the foundations investments, the annual legal and tax reporting requirements and parents and children are afforded an opportunity to form a collective vision for ongoing charitable giving. Also, because the foundation members – parents, children and advisors - will be reviewing grant applications, children learn firsthand how charities keep financial records, how they deal with human resource issues and how various organizations practice fiscal responsibility.


Once the foundation is formed, decisions about how younger generations can be brought into the fold can be made. Imagine setting up a family foundation that not only helps children and grandchildren attain respect for money and business acumen, but that also continues the family’s commitment to support charity - possibly forever.

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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