Personal legacy planning3 reasons a family foundation fails

October 1, 2021

Key things to know

  • Documents that clearly state the foundations reasons for being and governance rules help engage rising generations.

  • Start conversations with and get young family members involved early.

  • Professionals can help facilitate the planning and conversations necessary to improve the success of your family foundation.

Launching a family foundation is often done with the intent to make an impact with their resources and leave a legacy of family philanthropy and community support. With plenty of optimism at the onset, they don’t consider the likelihood of failure. However, without proper planning, a family foundation can and will fail.

“People start off with the best of intentions,” says Emily Bouchard, leadership and legacy consultant for Ascent Private Capital Management of U.S. Bank. “It’s hard work, and success comes down to how it’s set up. A family’s philanthropic structure takes a solid foundation to flourish. It’s like a skyscraper being built; the foundation seems to take forever. But once it’s done, it’s amazing how fast the building can go up—and stays up for generations.”

While there are best practices for successful family foundations that last many generations, there are also three family foundation planning errors to avoid.

1. Not being clear on intent

As new generations rise in the family office, leadership often changes. If the founder’s intent isn’t well-documented, the family may not remember why the foundation was set up in the first place, says Dan Harris, national director of philanthropic services at U.S. Bank Wealth Management.

“It’s really important for families setting up private foundations to document what they’re seeking, because those ideas may be lost quickly, especially if the founding donors pass away,” he says.

One way to document intent is to write a mission statement that spells out why the family foundation was created and the goal it sets out to accomplish. A family foundation should also have a value statement to support decision-making. This should document its philanthropic values so as the family changes, the foundation can change, too. For example, a family foundation that is focused on community projects may be in jeopardy if later generations move out of the original area. Or a foundation that supports a specific religion may find it hard to engage future generations if they don’t share the same beliefs.

“Having a value statement is an incredible way to engage the rising generation and perpetuate the family values for greater family autonomy and success going forward,” Bouchard says. “Connecting finances to values creates very different conversations. And clarifying the purpose can help with the ongoing engagement of family members. Engaging each generation is so important if you want the family foundation to continue.”

Intent should also be documented in a legacy letter or ethical will, as well as shared verbally during family office meetings where other generations can provide their input. During a recent client meeting, Harris asked a couple what had inspired them to set up their foundation.

“It was like the flood gates opened,” he says. “I listened for the next hour as they spoke about their philanthropic values and reasons for creating their foundation. I asked, ‘Have you documented this for your children?’ They looked at each other and said no. They realized how powerful it could be to share this conversation.”

2. Not establishing governance

Another way family foundations can be on shaky ground is if the founders don’t take time to set clear rules and structures around operations. Governance needs to document the policies and procedures for every action, from how decisions about grants and investments should be made to the qualifications necessary for a family member or employee to assume a role within the foundation.

“When someone wants to start a family foundation, it’s important to get very clear about the intent and to think beyond their lifetime.”

- Emily Bouchard, Ascent Private Capital Management

“If someone comes forward and is enthusiastic about running the family foundation, but they haven’t adequately been prepared for that role, they’re not set up for success and the foundation may be jeopardized,” Bouchard says, adding that there are training programs on how to lead a family foundation. “You want to address this at the beginning so that you minimize the likelihood of conflict, dissatisfaction or disengagement.”

Standards should also align with the family foundation’s values and mission. For example, if the foundation is focused on the environment, the governance could state what types of organizations fit within their grant or investment consideration. While the process is time-consuming, it’s essential.

“Many foundation boards don’t take this step, because it’s often difficult to reach consensus in some cases,” Harris says. “It helps to work with a professional organization like Ascent that can help families figure this out.”

3. Not thinking long term

Founders may assume that their children will continue their legacy, but family foundations often fail in later generations because the younger generation wasn’t involved earlier.

“It’s not uncommon for the third or fourth generation to feel like they have no connection at all to the purposes of the foundation,” Harris says.

Start conversations early to determine if young family members are interested in being involved in the family foundation. Getting everyone to provide a safe space for these discussions is important if members of the family have differing attitudes. For example, one generation may be more conservative in their approach, while another might have more progressive ideas.

“A lack of communication can cause problems for families,” Bouchard says. “It’s such a loss, because when you do open up conversations, you get to find out what the people you love care about and what their concerns are. It can help to have professionals who know how to facilitate those conversations, because sometimes everybody just defers to the patriarch and matriarch since it’s their money.”

If rising generations aren’t interested in carrying on the family foundation or have different values, the founders can decide if they want to put a professional manager in place to follow their philanthropic intent, or if they are willing to change the philanthropic journey.

“When someone wants to start a family foundation, it’s important to be very clear about the intent and to think beyond their lifetime,” Bouchard says. “Don’t do your planning in a vacuum. There are great resources to support you. Taking advantage of them can help improve the success of your foundation and continue your legacy.”

Learn how Ascent Private Capital Management® of U.S. Bank can help guide your family legacy.

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