Are we a “family” foundation or a family “foundation”?
This is not a trick question, as there is not a right or wrong answer. But it becomes a tricky question if the donor does not make his intentions clear. In the absence of clear direction from the donor, families may find themselves debating this issue, and it could become a topic that creates division within the family.
“Family foundation” is not a formal legal or tax classification but rather an informal descriptor of a private foundation that is created by a family, funded by a family, and often run by family members. However, not all individuals creating a foundation with their personal wealth intend for it to remain a family enterprise across generations.
In many cases, a donor creates a foundation with the intention that it be both a charitable giving vehicle and also a venue for family bonding, connection, and collaboration. If this is the intent, it should be made clear in written documentation and in the governance structure as established by a trust document or bylaws. It is important that these documents include a definition of “family member.” Would this include only lineal descendants of the donor, or also brothers, sisters, nieces, and nephews? And what about spouses and adopted children?
Some provision may be made for inclusion of non-family members in the governance of the foundation but may include limits on their level of authority. The inclusion of non-family members may provide access to expertise that may not exist within the family as well as insurance that the foundation’s work can continue even if there are insufficient numbers of family members available and willing to engage.
In some instances, a donor may have different aspirations for the foundation and may only desire for family members to have representation in its governance rather than ultimate control. In this case, these intentions should be documented in advance of any potential liquidity event. This will ensure that the donor’s wishes are understood and followed and avoid potential subsequent family disagreement. Whatever the donor’s intentions may be regarding governance of a foundation, it is best that they be made clear in the beginning.