The "Family Mission Statement"...A Key to Effective Philanthropy

Many of our clients feel passionately about contributing to society. For those that do, developing a “family mission statement” for your charitable activities should be one of your first priorities, along with matching the proper charitable structure to your charitable intent. Your family mission statement tells the world exactly what is important to you when making charitable gifts and reminds your family of its charitable purpose. A well thought out family mission statement will return direct long term benefits to your family in the areas of values, legacy, intra-family relationships, and the family’s relationships with the community at large.

You can begin the development of your family mission statement by asking the following questions:

• Are there any family goals that can be furthered through charitable activities or grant making?
• Are there specific charitable causes that have impacted the life of a family member so much that you want to support them now or in perpetuity?
• How much of your vision and values do you want to pass down from generation to generation?
• How involved do you want your children and your grandchildren to be in the actual charitable gift decisions?
• How actively do you and your family want to be involved in your charitable giving? Do you strictly want to be grant makers or do you want to make site visits and actively track the success of the projects you fund?
• How would you like to see your family’s vision respond to societal changes?
• Are there certain geographic areas that you’d specifically like to serve – local, regional, national, international?

Regardless of your specific answers to the foregoing questions, having conversations that involve these types of topics can contribute greatly to having a clear, consistent set of values that not only truly reflect who you are but also can be passed on to future generations. The charitable arena is a contained space in which children can watch how you make decisions, see what you value and see whether and how you concern yourselves with society at large. Whether stated or not, children will learn the values you hold simply by watching your actions and seeing the choices that you make. Over time, children can begin to play a role in the evolution of the family mission statement and your charitable activities that eventually they themselves will help pass to their children and grandchildren. With the family fully engaged, the process should produce a family mission statement that all family members have played a role in implementing and protecting, one that clearly reflects your values. The implementation of your family mission statement will leave future generations better situated to steward the wealth that they inherit from you.

The time spent as a family unit to develop a family mission statement and the process of coming together to develop it is a valuable by-product often overlooked. This process is a wonderful opportunity for a family to spend meaningful time together. Children will have the opportunity to express themselves and to know they are playing a real role in shaping their family’s charitable objectives. After the family mission statement is complete and the focus shifts to implementing your family’s charitable vision, family members will have the opportunity to remain involved, play a role in helping to make family giving decisions and assess performance of the charities the family chooses to fund. Through this involvement, family members will be exposed to, and have an opportunity to learn, many other valuable skills including business practices, board governance, and investment policies.

In past Commentaries, we have described the various vehicles through which families conduct charitable activities. It is important to match the proper structure of your charitable activities with the intent of your family mission. Two of the more common charitable vehicles chosen by families are the private foundation and donor advised fund.

A private foundation is a tax exempt entity (usually a corporation or a trust) that is created by an individual or family to fund charitable activities. A private foundation has a board of directors, or trustees, who run the foundation and who have responsibility for the assets that have been donated to the foundation. This charitable entity must be operated exclusively for religious, charitable, scientific, literary or educational purposes, or to foster amateur sports, or prevent cruelty to children or animals. Generally, the recipients of the private foundation’s distributions are public charities who fall into one of these categories (unless the private foundation is formed as an operating private foundation, which entitles it to actually run charitable activities itself).

A donor advised fund is a pool of charitable assets that have been contributed by multiple donors to a third party charitable administrator. In addition, it is a lower cost, easy to establish alternative to the private foundation that also offers similar tax advantages. A donor can maintain a separate account in this pooled fund, put his or her name on that separate account, and recommend that the donor advised fund make gifts of its assets to specific charitable recipients. The donor, however, cannot give binding direction. Also, unlike a private foundation that can make grants to individuals in certain circumstances, a donor advised fund cannot include direct grants to individuals in separate charitable activities.

With your family mission statement in mind, the following is a brief summary of a number of key differences between the two options that could affect your choice of entity:

Control of Purpose
A private foundation can be created with a purpose that is as restrictive or expansive as the donor desires. The controlling arrangements may strictly limit the charitable activities of the private foundation in perpetuity or may allow the board to change the foundation’s charitable purpose for any reason. The only unavoidable restriction is that the beneficiaries of the private foundation’s monies must be other purely charitable entities. In the case of a donor advised fund, each grant request is submitted to the donor advised fund and is processed as a request. Although the donor advised fund will generally honor the family’s request, it is not bound to do so.

Control of Timing of Grants
The law requires that a private foundation distribute 5% of the net value of its assets annually. Because the assets in a donor advised fund are pooled, there is no requirement that a donor begin making donations from the assets they contributed within any certain timeframe. This works well when timing of the deduction is important but the donor has not yet specified the ultimate charitable recipient.

Memorial to Family
In the case of a private foundation, all grants made will bear the name of the private foundation. In the case of a donor advised fund, all grants will bear the name of the donor advised fund and may also indicate that the funds were distributed at the request of the specific donor if the donor so desires. Consequently, if a donor desires to make mostly anonymous charitable gifts, the donor advised fund provides a very simple and effective means to do so.

Buffer Between the Family and the Public
Both the private foundation and the donor advised fund can serve as a buffer between the family and the public at large. The structure of either entity provides an effective screen that the family can use to limit the access of grant seeking charities.

Annual Administration
Annual tax filings are required of private foundations and in certain cases audited financial statements may be required as well. Once a donation is made to a donor advised fund, the donation is complete and the donor has no additional tax or state filing requirements. This is often one of the most important distinctions for families who are trying to keep their charitable giving cost-effective yet simple.

Opportunity to Educate Family Members
A private foundation provides a family with a more structured method of educating family members on philanthropic activities and on organizational functions including what it means to serve on a board of directors.

Ultimately, the decision to use a particular charitable structure, be it a private foundation or donor advised fund, depends on careful consideration of your family mission statement, a variety of tax and administrative considerations, and the actual amount of money a donor would like to irrevocably set aside for their charitable giving.

Please contact your Aspiriant client service team if you are interested in finding out more about the right charitable vehicle for your family and the various ways in which your family can develop your family mission statement.

Ginny King

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