HighView Financial in Family Wealth Planning

6 Considerations for Affluent Families Forming a Family Foundation

Many high net worth families we have worked with are grateful for the people in their lives and the opportunities they’ve been given; along with their hard work and persistence, these people and opportunities have helped shape their lives and contributed to their economic successes. Because of that strong sense of gratitude, numerous affluent families are committed to “giving back” to their communities and to society.

One way that these families have found to give back is by creating their own family foundations, which are charged with achieving philanthropic goals.

Why a Family Foundation Should Be Viewed as a Wealth Management Business

In our experience working with both affluent families and foundations, we have learned that it is important for families to view their foundation as a wealth management business.

When affluent families regard their foundation assets as an ‘Investment Portfolio’ or a ‘Legal Structure’, the result is often disconnected professional advice (from accountants, investment advisors, lawyers, etc.) and poorly structured investment portfolios. In this scenario, we have found that the family foundation’s investment portfolios are typically just a ‘collection of investment ideas’.

Family foundations do not need a collection of investment ideas; they need a series of prudently designed, purpose-driven portfolios that are aligned with their specific family philanthropic goals, thus providing the confidence, with a high degree of certainty, that the gifting/funding plans and requirements are achieved and are sustainable well into the future.

Affluent families who view their foundations as a business impart certain philosophies, disciplines, and purposes that ultimately yield a sustainable philanthropic enterprise. This approach is in line with the approach they took for their (usually) entrepreneurial business that initially created the family wealth.

Like any other business, a family foundation should be established after certain key essentials have been considered.

It is our view that affluent families must determine the following attributes when establishing a family foundation:

1. Purpose

What is the family foundation’s purpose or mission?

2. Philosophies and Values

What philosophical beliefs and values must the family foundation and its members adhere to?

3. Beneficiaries

Who are the family foundation’s beneficiaries?

What type of organizations/needs is the family foundation looking to support?

What are the expectations and responsibilities, if any, of beneficiary organizations for receiving philanthropic donations from the family foundation?

4. Goals

What are the family foundation’s goals?

Although goals can vary for family foundations, they often have both qualitative and quantitative measurements, which are tied to the philanthropic support of a focused group of beneficiaries. We refer to this as “Strategic Philanthropy”.

5. Board/Management Team

What are the key roles and responsibilities required within the board/management team? Who will fulfill these roles?

The board/management team should ideally address key functional advice areas, such as foundation regulations and investment management. The team should also determine which key family members will champion the foundation’s purpose, philosophies, and values.

The board/management team should be governed by a set of criteria that addresses expected attitudes and behaviours of board/management participants. Selection of board/management team members should be made with these criteria at the forefront in order to truly make the family foundation sustainable for future generations.