The previous article on philanthropy focused on the reasons for giving and the importance of giving well. In this part, we’ll look at how to construct and implement a strategy for intentional philanthropy. We focus on the family foundation mission and vision statements, as well as best practices to implement a giving strategy.
Family Foundation Values Statement
A family may have a good reason or reasons for their charitable giving. However, it is important that they memorialize this in a values, vision, and mission statement. This activity could take place during a Family Assembly or Retreat or at a family office board meeting. The process begins with identifying three values that are most important. (Here is a list of examples.) Family members could also simply ask and answer the following questions of themselves.
- What people, things, or ideas are important to me?
- What makes me feel fulfilled?
- What qualities, character traits or virtues do I identify with?
[Value 1], [Value 2], and [Value 3] are important to me because ____.
They have led/are currently leading me to do ___ for others.
Philanthropic Values Statement Example
Equality. The Smith Family Foundation believes in equality of opportunity for all, including those who have been born at a disadvantage for whatever reason.
Education. The Smith Family Foundation believes that education is the primary means for improvement of both individuals and society, and that excellent educational opportunities should be available to all those who wish to avail themselves of them.
Freedom. The Smith Family Foundation believes that each human being should have the opportunity to live a free and flourishing life.
Family Foundation Vision Statement
Next is the vision statement. A vision statement answers the questions: where am I going? What does an ideal future look like? The family should identify demographics, causes, and regional areas that they want to help, and should be as specific as possible.
Philanthropic Foundation Vision Statement Example
The Smith Family Foundation puts the Smith Family’s vision into practice. The Smith Family’s vision is to see children in local, national, and global communities live free and flourishing lives. We believe that education is the primary means of flourishing once basic needs have been met.
Family Foundation Mission Statement
Lastly, the exercise includes a mission statement. A family foundation mission statement defines the specific goals that the family has set to achieve its vision. The mission statement might incorporate specific initiatives that the family has set. Try to keep the mission at a high enough level, so that it does not need to be updated every time the family engages with a new charity,
Philanthropic Foundation Mission Statement Example
Because the Smith Family Foundation believes in the right of children around the world to experience equality, education, and bodily safety, we aim to address equality in our own local communities by funding food, shelter, and education for children in need; support education in our State through funding of organizations that advocate for school choice and competitive options for excellent students; and address human trafficking by partnering with NGO’s in South East Asia who work to rescue and rehabilitate children who have been enslaved.
The Rising Generation
Private foundations (and other modes of family philanthropy) are often touted as creative ways for the rising generation to gain experience and find meaning for their wealth. The recommendation is ubiquitous enough to have become a cliche, but there is still value for motivated rising generation members. There are several ways to involve the rising generation in the administration of a family foundation.
Young members of the rising generation, who may still be in school, might benefit from a site visit to see the impact of the foundation’s grants and programs. They may also benefit from touring the physical office (if there is one) to get a concrete sense of what day-to-day work looks like for the foundation. James Hughes also recommends teaming up young family members with a grandparent to make small grants. This should both be a fun relational activity as well as a valuable learning exercise.
Older members of the rising generation might assume some responsibility within the administration of the private foundation, eventually in a board or committee position. They might work under the mentorship to ensure professional standards of operation. Private foundations might consider criteria that family members must be employed in a relevant industry for some number of years before assuming large amounts of responsibility and/or a salary.
Young people often model the actions rather than the intentions of the elder generation. If philanthropy is truly important to a family, the elder generation should embody the importance with frequent conversations and demonstrably care for charitable endeavors. Giving can be a part of the family’s fabric and identity.
Choosing a Giving Vehicle
Part of an intentional philanthropy strategy is determining what giving vehicle to use. Here is a list that highlights some of the advantages and disadvantages of each option. At The Grupp Law Firm LLC, we tend to encourage Private Foundations for ultra-high-net-worth families. However, individual families should consult with their estate lawyers as to which vehicle best fits their situation and giving goals.
Donor-Advised Funds (DAFs)
Pros: DAFs offer convenience and simplicity. They allow donors to contribute to a fund and then recommend grants to charitable organizations over time. They provide an efficient way to manage charitable giving, with low administrative burdens and the ability to invest and grow funds tax-free. DAFs also offer privacy, as donors can choose to give anonymously if desired.
Cons: One potential disadvantage of DAFs is that they do not require an immediate distribution of funds to charitable organizations. This leads to delays or lack of transparency in how funds are ultimately granted. Additionally, critics of DAFs argue that they are not truly charitable vehicles as they can be used for purposes other than charitable giving, such as supporting personal or political interests.
Pros: Private foundations allow families to establish and maintain their own charitable organization within their own governance structure and according to their own philanthropic values, vision, and mission. Private foundations provide opportunities for family involvement and legacy-building. They also enjoy tax-exempt status, allowing for potential tax savings.
Cons: Private foundations require more administrative responsibilities, including legal and financial compliance, annual reporting, and higher operational costs. They are subject to stricter regulations and oversight by the IRS, and grantmaking decisions are made by the foundation’s board, which may limit the donor’s ability to have immediate impact or respond to changing needs. Private foundations also have stricter rules around self-dealing and conflicts of interest, which can limit the donor’s flexibility in certain situations.
Pros: Public charities, such as community foundations or public grantmaking organizations, offer a turn-key solution for donors who want to support a cause without administrative responsibilities. They provide expertise in grantmaking, due diligence, and impact assessment, and often have established networks and relationships in the philanthropic sector. Public charities also offer tax benefits, as donations to qualified public charities are tax-deductible.
Cons: Public charities may have limitations on the types of grants or organizations they can support, and donors may have less control over the specific use of their funds. They may also have their own administrative fees or requirements and may not provide the same level of family involvement or legacy-building opportunities as private foundations. Public charities may also be subject to changing regulations or shifts in funding priorities, which can affect the donor’s ability to continue supporting their chosen causes.
Pros: Impact investing allows donors to align their philanthropic goals with their financial investments, seeking to generate positive social or environmental impact alongside financial returns. It can provide a more sustainable and scalable approach to addressing social issues and can leverage market forces and innovation to drive change. Impact investing also offers potential for blended finance, where philanthropic capital can be used to attract additional private or public investment.
Cons: Impact investing may involve higher risks or lower financial returns compared to traditional investments and may require specialized knowledge or expertise in identifying and managing impact-oriented investments. It may also require longer time horizons for impact to be realized and may not be suitable for donors seeking immediate or tangible outcomes. Impact investing also requires careful consideration of the social or environmental impact of investments, as well as potential conflicts of interest or unintended consequences.
Family Foundation Decision-Making Structures
Within the giving vehicle a family constructs, there are several ways families can organize the decision-making process around where, when, and to whom to give. Ultimately, the decision-making structure that families choose should be based on their unique goals. It is important to carefully consider the family’s dynamics, size, complexity, and philanthropic aspirations when determining the most appropriate decision-making structure. Here are some decision-making structures that families could consider.
In this structure, decision-making authority rests with a designated family member or a small group of family members who are responsible for making philanthropic decisions. This structure can provide a clear chain of command and streamline decision-making, but it may also result in limited input from other family members and potential challenges in reaching consensus. Rising generation family members can join on application or invitation.
In this structure, decisions are made collectively through consensus among all family members or a designated group of family members. This approach ensures that all family members have an equal voice and can contribute to the decision-making process, but it may also require more time and effort to reach consensus and may be challenging in cases where family members have divergent views.
In this structure, decision-making authority is delegated to different committees or task forces focused on specific aspects of the family’s philanthropy, such as grantmaking, investment, governance, or impact evaluation. This structure allows for specialization and expertise in different areas, but it may require additional coordination and communication to ensure that decisions are coordinated and aligned with the overall philanthropic goals.
Professional Advisory Structure
In this structure, families engage professional advisors, such as philanthropic consultants or attorneys, to provide guidance. This structure allows families to leverage external expertise and may provide a more objective perspective, but it may also involve additional costs and reliance on external advice.
The family could combine two or more of the above structures. For example, they could start with a hierarchical structure, but bring professional advisors onto the board in a non-majority position and take non-binding input from the broader family members at a Family Assembly.
Family Foundation Budgeting Considerations
The amount that any family gives should consider both generous intent and overall estate plan considerations. When creating a one, three, and five-year budget for giving, families and their advisors can examine the following:
Assessing the available funds for philanthropic giving is a key budgeting consideration. Families need to determine the amount of funds they can allocate to their philanthropic endeavors based on their financial capacity, including their current assets, income streams, and expenses.
Once the family has established its values, vision, and mission statements, they can then identify and prioritize the causes or issues they want to support and allocate their funds accordingly, setting aside specific funds for each giving area based on their values, interests, and long-term goals.
Families need to develop a grantmaking budget that outlines the funds allocated for grants. This includes setting a budget for one-time donations, creating endowed funds, or establishing multi-year commitments, and ensuring that the grantmaking budget aligns with the family’s overall philanthropic goals.
Families need to budget for operational expenses related to their philanthropic activities. This may include costs such as staff salaries, office space, legal and accounting services, fundraising efforts, technology, and other administrative expenses. Budgeting for operational expenses is crucial to ensure that the family philanthropy has the necessary resources to effectively execute its strategic plan.
Families may consider allocating a portion of their philanthropic funds for investments. Budgeting for investment strategies involves evaluating different investment options, risks, and potential returns, and setting a budget for managing the philanthropic assets to generate potential returns and sustain giving over the long term.
Families need to budget for contingencies, such as unforeseen emergencies, changes in the economic or philanthropic landscape, or unexpected expenses. Setting aside funds for contingency planning is important to ensure that the family’s philanthropy remains resilient and adaptable to changing circumstances.
Monitoring and Evaluation Budget
Families need to budget for monitoring and evaluation of their philanthropic efforts. This may include tracking the impact of their grants, assessing the effectiveness of their giving strategies, and adjusting their budgeting and giving plans accordingly. Budgeting for monitoring and evaluation is essential to ensure that the family’s philanthropy is making a meaningful difference and achieving its desired outcomes.
Structuring the Gift
When structuring philanthropic gifts, there are several considerations to keep in mind to ensure that the gift aligns with the donor’s intentions and maximizes its impact. One key decision to make is whether the gift should be unrestricted (general operating support) or restricted (project support). For restricted gifts, it is important to consult with nonprofit senior management to understand their specific needs and priorities.
If the donor wishes to support a new project, the gift should be commensurate with the long-term strategy of the organization. Alternatively, the donor may choose to fund a partially completed project to provide the necessary resources for its successful completion. When making a restricted gift, it is also recommended to earmark a portion (typically 15-20%) for indirect costs such as overhead and administration to support the organization’s overall operations.
Another type of philanthropic gift to consider is capacity-building gifts. These gifts provide support for strategic planning, board recruitment, staff development, and fundraising efforts of the nonprofit organization. By investing in the organization’s capacity to operate effectively, these gifts can have a long-term and sustainable impact.
Endowment gifts are another option for structuring philanthropic gifts. These gifts are invested in perpetuity, with the interest and earnings generated used to support the organization’s programs and activities, while the principal remains intact. Endowment gifts are often used to establish scholarship funds or provide ongoing support for specific initiatives. Donors should carefully consider the size of the endowment gift to ensure that it generates meaningful and sustainable support for the intended purpose, as a new endowment fund may entail administrative costs, such as legal and investment fees.
Conducting Due Diligence
Family foundations should conduct thorough due diligence on the non-profits they fund in order to ensure that their philanthropic funds are allocated to reputable organizations that align with their mission and values. A thorough due diligence process also allows family foundations to put trust in the nonprofits they fund. It’s important for family foundations to develop and follow a consistent and transparent due diligence process. Engaging professional advisors or experts in the philanthropic sector can also be helpful. Here are some steps a family foundation can take to vet and conduct due diligence on nonprofits:
Define Funding Criteria
The family foundation should clearly define its funding criteria, which may include factors such as the nonprofit’s mission, programs, impact, geographic focus, financials, and governance. This will serve as a guide when evaluating potential nonprofits.
The family foundation should conduct thorough research to identify potential nonprofits that align with its funding criteria. This may involve reviewing nonprofit databases, websites, annual reports, and other publicly available information to gather information about the nonprofit’s mission, programs, leadership, financials, and impact.
The family foundation can request additional information from nonprofits, such as grant proposals, budgets, audited financial statements, and impact reports, to gain a more comprehensive understanding of their operations and effectiveness. Foundation board members can review this information to assess the nonprofit’s alignment with the foundation’s funding criteria and financial stability.
Conduct Site Visits
The family foundation may conduct site visits to the nonprofits to meet with their leadership, staff, and beneficiaries, and to observe their operations and impact first-hand. Site visits can provide valuable insights into the nonprofit’s programs, effectiveness, and organizational culture.
The family foundation can request references from the nonprofits and reach out to other funders, partners, or beneficiaries to gather feedback on their experiences with the nonprofit. This can provide additional perspectives and insights into the nonprofit’s reputation, credibility, and impact.
Due Diligence Checklist
- Is the organization legally registered
- Does the organization have offices in the region it impacts?
- Is media coverage positive?
- Does the organization clearly define goals and strategy?
- Does the organization have sufficient evidence or research supporting its chosen strategy?
- Are the organization’s goals and approach consistent over time?
- Are the organization’s programs/services aligned with these goals?
- Is the organization’s work aligned with the needs of its target population?
- Does the organization have expertise among staff?
- Is the organization’s board well-rounded?
- Is the organization in the midst of significant leadership transitions?
- Have the organization’s financial records been audited?
- Are the organization’s funding sources diverse?
- Is the organization’s revenue greater than its expenses?
- Is the organization’s current budget available? Is it appropriate for its goals?
- What is the organization’s greatest funding need?
- Does the organization share its impact from past programs?
- Does the organization incorporate what it learns into future programs?
- Does the organization have a plan for monitoring and evaluating current programs?
Donors like to know that their philanthropic funds end up really serving charitable purposes. Assessing the impact of charitable donations made by a private foundation is therefore an important part of intentional philanthropy. As a note of caution, however, it may be difficult for charitable organizations to show the impact of one family’s contributions, unless these contributions form a very substantial part of the overall budget of the organization or a specific initiative within the organization. Likewise, if families expect detailed reporting on the impact of their funds, they should consider the administrative burden that this might have on a charitable organization which tries to minimize overhead costs. More typically, families will want to know the overall direction, health, and impact of a charitable organization from quarter to quarter or year to year. Here are some steps a family can take to assess the impact of their charitable donations.
Define Measurable Objectives
The family foundation should define clear, measurable objectives for their philanthropic efforts. This may include specific goals, targets, and outcomes that they expect to achieve with their charitable donations. Objectives should be SMART (Specific, Measurable, Achievable, Relevant, Time-bound) to ensure they are clear and actionable.
Develop a Monitoring and Evaluation Framework
The family foundation should develop a monitoring and evaluation framework that outlines the indicators, methods, and timeline for assessing the impact of their charitable donations. This may include setting up systems to collect and analyze data on the progress and outcomes of funded programs, and establishing mechanisms for regular reporting and feedback from grantees.
Require Reporting from Grantees
The family foundation can require grantees to provide regular reports on their progress, outcomes, and impact. This may include quantitative data (e.g., number of beneficiaries served, outcomes achieved), qualitative data (e.g., stories of impact, testimonials), and financial data (e.g., budget utilization, financial statements). As stated above, these requirements should be reasonable and commensurate with the size of the gift and the capabilities of the charitable organization.
Conduct Site Visits and Monitoring Visits
The family foundation may conduct site visits to the nonprofits they have funded to observe their operations, meet with their leadership and staff, and assess the impact of their programs first-hand. Monitoring visits can provide insights into the effectiveness of funded programs, challenges faced, and areas for improvement.
Engage Independent Evaluators
The family foundation can engage independent evaluators to conduct formal evaluations of funded programs to assess their impact. Independent evaluators can provide unbiased assessments of program effectiveness, using rigorous evaluation methodologies, data analysis, and reporting.
Measure Long-term Impact
The family foundation should consider measuring the long-term impact of their charitable donations beyond short-term outcomes. This may involve tracking changes in beneficiaries’ lives over time, such as improvements in education, health, economic well-being, and social empowerment.
Learn from Feedback and Adapt
The family foundation should use the feedback and insights gained from monitoring, reporting, evaluation, and site visits to continuously learn, adapt, and improve their philanthropic efforts. This may involve adjusting the foundation’s funding strategies, program design, and implementation to enhance the impact of their charitable donations.
The family foundation should communicate the results of their impact assessment efforts to stakeholders, including family members, board members, grantees, and other partners. This can promote transparency, accountability, and learning, and demonstrate the foundation’s commitment to making a positive difference.
This article focused on how to construct a strategy for an intentional philanthropy program. It starts with the importance of creating a values, vision, and mission statement to guide the family’s giving. Choosing the right giving vehicle, such as a private foundation, is another crucial decision to make. Budgeting considerations and structuring the gift are also important aspects to consider, including whether the gift should be unrestricted or restricted, and whether it should be used for capacity-building or endowment purposes. Decision-making structures within the giving vehicle should align with the family’s unique goals. Vetting and conducting due diligence on nonprofits, as well as assessing impact, are essential steps in intentional philanthropy. Donors should also be mindful of the administrative burden on charitable organizations and seek professional advice as needed.