Family Office Philanthropy: Building a Giving Strategy

Video transcript

The family office association was founded in 2007 as a peer network for single family offices. Family office philanthropy. There are whole courses and books on philanthropy and philanthropic giving. Here we will share a few observations from the perspective of the unique challenges faced by family offices. Some of these points may seem obvious but you would be amazed how often they are overlooked. Philanthropy is one of the most lasting and meaningful ways a family can convey its legacy and provides a unique opportunity to bring different generations together. A successful family office philanthropy program integrates charitable giving into family office governance and next generation education and leadership development. For many family offices, philanthropic work is a key component of the role and a cornerstone of family office design and operations. However, as Andrew Carnegie was famously quoted as saying, it is more difficult to give money away intelligently than it is to earn it in the first place. Let's see how and why that might be the case. We'll start with the philanthropy mission statement, which sets out what the family cares about and guides the family office to pursue the family's charitable giving. The philanthropy mission statement covers what the family cares about and most wants to change. an assessment of current and past giving practices and defines a community cause or area of focus. There are many famous philanthropic legacies that probably come to mind, including the Gates Foundation, the Ford Foundation, the William and Flora Hewlet Foundation, and the Rockefeller Foundation to name just a few. What's interesting is the range and breadth of causes these large family foundations and endowments focus on. Families of this scale often look to areas where they can carve out a niche. They tend to seek differentiation in the causes they support so they can have the greatest impact and they can be very competitive when it comes to philanthropy. Many want their impact to be visibly seen. A key role for a family office is to help principles record their donating intent during their lifetime and to facilitate conversations around giving strategies. It is important to research and connect with organizations within the ecosystem the family is interested in and to develop in-house subject matter expertise. Philanthropy guidelines should provide a precise framework for decision-making akin to an investment policy statement. Having said that, one key challenge is how to calculate a social return on investment from the family's philanthropic giving. Like everything in life, good execution and communication is key when it comes to effective philanthropy. This might include structuring a private operating foundation or a non-operating foundation for the family. With an operating foundation, the family office directly runs the family's own charitable programs and actively operate facilities such as museums and hospitals. Operating foundations have paid staff, provide direct services, and engage in research, advocacy, and education initiatives. Examples of operating foundations include the Getty Foundation and the Robert Wood Johnson Foundation. The vast majority of private foundations are non-operating foundations. They do not directly engage in charitable activities or run their own programs. Instead, they make grants to other organizations to carry out philanthropic work aligned with the family's mission and goals. They typically have minimal staff who evaluate grant proposals and manage relationships with grantee organizations. Examples of non-operating foundations include the Gates Foundation, the Ford Foundation, and the Rockefeller Foundation. There are complex legal requirements when it comes to setting up each type of foundation. We don't have time to get into the complexities of entity structuring, but this is often a subject that family offices spend countless hours and dollars trying to optimize. Another type of charitable entity that has become popular in recent years is the donor advised fund. While a private foundation can donate to an individual, as long as the situation meets IRS restrictions, donor advised fund donations must be made to a public or private charity. In practice, donor advised funds are quite flexible and afford a great deal of discretion to the families that fund them. However, they are ultimately controlled by the sponsoring organization. Thank you for listening. We hope you have enjoyed this content. Please share with others or visit tfoa.info to learn more.