Challenge:

The foundation has its roots in a humble frontier feed store. Founded in the 1890s, the store eventually grew into a sizable company with a household name. Relatives of the three brothers who grew that company founded their foundation in the 1940s, and it has been in operation ever since.

Today, the board of the foundation, which is comprised of descendants of the brothers, pays homage to its history by keeping track of other descendants through familial records. There are now dozens of descendants and, upon reaching the age of 18, they are all eligible to join the foundation as a non-voting member and attend board meetings. The foundation will match up to three member gifts to charity for as much as $1,500 total in a given year. Members are also able to provide feedback via grant committees for organizations that have applied for funding.

The foundation’s tradition of making giving a (very large) family enterprise is one of its most cherished hallmarks. Even so, all that gift-matching and grant committee activity makes for an enormous amount of paperwork and a sizable administrative burden.

Collaboration:

Foundation Source set up their gift-matching program on Applications, our online grants management system for accepting, organizing, tracking, and replying to charitable requests. (Applications is available as an add-on to the robust platform our clients use to manage their foundations.)

Family members use Applications to apply for their gift match. Foundation Source verifies that the family member made a donation and that the recipient organization is eligible to receive grants from the foundation. We also customized Applications so that when a family member is a part of a grant committee, they can log in, review their committee’s applications, and then leave comments for board members.

Outcome:

Thanks to their experience with Applications, the foundation now benefits from a seamless, paperless process for its gift-matching program. The foundation is free to celebrate its heritage without worry that the growth of its family tree will outstrip its administrative capabilities.

The post How a Private Foundation Is Keeping An (Extended) Family Tradition Going Strong appeared first on Foundation Source.

Challenge:

The board of the Charles R. Wood Foundation carries on the work of its late founder by supporting children, the arts, and healthcare in upstate New York.

While traveling in rural North Carolina, the president of the foundation read an article in the local newspaper about Dolly Parton’s Imagination Library program and its outreach to the region. This national program, which is available to any community, mails a book to children under five years of age each month. The purpose of the program is to boost early childhood literacy and foster a love of reading.

As the Charles R. Wood Foundation wanted to promote childhood literacy in upstate New York’s rural counties, they asked their Private Client Advisor at Foundation Source to get them information on how they could get involved.

Collaboration:

The Private Client Advisor contacted the Dollywood Foundation, which was able to provide the demographic research the foundation required to assess regional need. Dollywood also identified possible literary agencies that might be willing to partner with the Charles R. Wood Foundation. Foundation Source coordinated the effort by discussing the program with the Literacy Volunteers of Clinton County, who agreed to handle the child registration process.

Foundation Source has streamlined the entire application process, saving the foundation significant time and administrative effort. The foundation is very pleased with their new process, but we revisit it each year and continue to refine it based on their evolving needs.

Outcome:

The Foundation now supports the Imagination Library program, enabling 3,500 children in Clinton, Essex, Franklin, and Hamilton counties to participate. The foundation is thrilled that Foundation Source could help connect them with the necessary partners to make this project happen, and they appreciate how easy we’ve made it for them to track its results, procuring semi-annual updates for their review.

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The 2004 book, Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy, written by Russ Alan Prince and Hannah Shaw Grove, Foundation Source’s Chief Marketing Officer, indicated that many families had adopted an increasingly holistic approach to managing their affairs, creating numerous points of intersection among the various parts of their portfolio as they sought to achieve a range of investment, risk management, tax mitigation and philanthropic goals. However, many family offices felt there was room for improvement in the way philanthropy was conducted, as it did not fully reflect the personal interests and intent of the underlying family members.

Prince and Grove’s 2010 book, The Family Office: Advising the Financial Elite, revealed that as the leadership of the family moved from one generation to the next, they were likely to use the transition as an opportunity to tighten the focus of operations and streamline expenses within their family offices. Most commonly, this meant retaining investment management and related services in-house while outsourcing non-core services, such as philanthropic advisory and charitable planning. In many cases, the families still wanted and needed support for the outsourced activities but expected to rely on a carefully curated network of specialists rather than building that infrastructure within the family office.

The 2014 book, Taking the Reins: Insights into the World of Ultra-Wealthy Inheritors, by Prince and co-authors Jared Dubey, Richard J. Flynn, and Brett Van Bortel, explained that rising generations (those who were not yet controlling wealth but actively assuming larger and more influential roles within their family) were keen to use their resources to tackle key social and environmental issues but readily acknowledged some gaps in their own skills and experience. As such, there was high interest in learning more, meeting like-minded people, and getting more involved to improve philanthropic activities and outcomes.

New Discoveries

Six years later, there is new research from two generations of family members with family offices that illustrates a natural evolution of the above-mentioned trends and shows that philanthropy remains an important but potentially undermanaged component of the family agenda due in part to diverging generational views.

In contrast to the founding generation, who are typically focused on wealth creation, inheritors are proportionately more involved in philanthropic endeavors and expect to have even greater involvement in the future (Exhibits 1 and 2).

For all generations in a family office, the core motivation is helping others but founders are more likely to see philanthropy as a way to build a personal legacy while inheritors see it as a mechanism for benefiting society (Exhibit 3).

And, lastly, relatively few members of either generation have worked with outside experts like philanthropic advisors or private client attorneys to help formulate and execute their charitable agenda. This last point demonstrates that there is still room to enhance and possibly institutionalize the structure and process of their philanthropic activities (Exhibit 4).

Being charitable is an important consideration for many wealth creators and inheritors, but in many family offices, the support mechanisms for philanthropy are no longer part of the core operating infrastructure. And, as younger family members assume more prominent roles setting the direction for the family’s wealth management, there is wider acknowledgment that they need professional guidance and a peer network to synchronize the overarching priorities of the family and its charitable activities and ensure that philanthropic assets are deployed in ways that will deliver maximum impact.

Key Opportunities for Advisors

These findings translate into several opportunities for advisors to better support their charitably inclined clients:

• Expand the client discovery process to include a discussion of charitable goals, which can help uncover unspoken aspirations and interests.
• Address philanthropy as part of the financial plan (and investment policy, as appropriate), which can lead to multi-dimensional relationships and new pools of assets.
• Help clients evaluate charitable vehicles based on their giving style and long-term objectives.
• Create client connections within your practice, and more broadly within your community, that will bring like-minded people together to learn and collaborate.
• Source technical expertise that will help your clients advance their philanthropic missions and provide a complementary perspective to yours, delivering a more complete service experience.
• Check in periodically with clients to diversify your conversations, evolve your relationship, and demonstrate the link between their financial plans and the realization of personal passions.

If you’re ready to deepen the relationships with your most charitably inclined clients and set your practice apart from the crowd, consider discussing these findings with them.

The post How to Help Families Make the Most of their Philanthropy appeared first on Foundation Source.

• A corporate foundation can engage in charitable activities that would not be tax deductible if handled directly by the company. These include loans for a charitable purpose that are paid back to the foundation; grants to for-profit entities when they are used for a charitable purpose or to advance the work of the foundation; scholarship programs; and even grants to individuals for disaster relief and economic hardship.
• It can allow for a more consistent level of giving: building an endowment in years when company profits are high that can be tapped into during less profitable years.
• The company can avoid capital gains taxes when highly appreciated assets—such as stock, land, and other appreciated property—are “gifted” to the corporate foundation.
• Staffing and overhead for the foundation can be paid by the foundation, resulting in a reduced cost to the company.
• When named for the company, the foundation’s charitable activities reflect positively on the company’s image. Similarly, a company with a well-known and respected name can generate greater public visibility for the foundation’s charitable activities.
• The foundation’s funding guidelines can help company executives gracefully turn down inappropriate funding requests, especially from friends, customers, and employees.
• Unlike donations made directly by the company, foundations are not required to collect substantiation receipts from nonprofits for gifts greater than $250. For companies with matching gift programs, or that make many small donations, this means they do not have to expend resources tracking and collecting these receipts.

Starting a Corporate Foundation Has Never Been Faster or Easier

Foundation Source will establish your corporate foundation and have it ready for funding in less than a week. Over the past decade, we’ve created over 2,000 foundations and have developed a proven and streamlined process.

Here’s what’s included:

• Creation of the foundation entity (a Delaware nonprofit corporation)
• Bylaws and essential governance policies
• Preparation and filing of the IRS application for exempt status (Form 1023)

OUTSOURCED EXPERTISE AND SUPPORT SERVICES TO ESTABLISH AND HELP YOU MANAGE YOUR CORPORATE FOUNDATION

Simplified Foundation Management

Foundation Source provides a full suite of services to keep your corporate foundation running efficiently, effectively, and compliantly. This allows your staff to devote their time to strategy and program development, as well as the needs of running your business.

We take care of everything: state and federal filings, transaction accounting, document management, compliance monitoring, transaction processing for grant checks, transmittal letters, expenses, and fees.

You’ll also enjoy peace of mind knowing that foundation experts are keeping watch to help you avoid compliance issues that can result in financial penalties, reputational harm, and even loss of exempt status.

Below is a brief summary of our foundation management services.

ADMINISTRATIVE SUPPORT

We provide the day-to-day support all corporate foundations need to operate efficiently and compliantly. This includes transaction recordkeeping, active compliance monitoring, grant check processing, and state and federal filings. There’s no need to hire additional staff or burden existing employees with duties they aren’t trained for.

ONLINE RESOURCES

Foundation Source Online® is a secure, web-based platform for managing foundation activities, including charity research, grantmaking, reporting, viewing investment balances across all accounts, and checking your 5% minimum distribution requirement. Viewing rights and permissions are individually defined for each staff member given access to the site. It provides transparency into foundation activities and facilitates communication and collaboration among those involved.

PHILANTHROPIC ADVISORY SERVICES

We have philanthropy, tax, and legal experts to get you started and then take your foundation to the next level. Services are coordinated through a dedicated Private Client Advisor, who serves as your primary contact and gets to know you and your foundation inside and out. In addition, our Philanthropic Advisory Services team has extensive experience in partnering with corporate foundations. Foundation Source clients have access to customized advisory services, tools and resources that enable foundations to maximize the impact and efficiency of their philanthropy. Contact us today to learn more.

STREAMLINED GRANTS MANAGEMENT

Applications facilitates the grantmaking process, making it easy for your foundation to accept and review online applications while also making the process convenient for your applicants. Because applications are submitted electronically, staff can efficiently organize and manage grant requests; centrally communicate about them; review them online; and easily generate data and reports.

Outcomes helps the foundation track the impact of its charitable donations, monitor performance, and request formal reports, all from a simple web console. It automates the process of collecting key performance information from nonprofits, including how grant funds were spent, grantee’s progress towards goals, unexpected challenges, and lessons learned.

EMPLOYEE ENGAGEMENT

These optional services are available through our network of preferred partners: workplace giving, volunteer tracking, international programs, fundraising campaigns, and disaster relief.

The post Corporate Foundations: Getting Started appeared first on Foundation Source.

As a starting point, it’s helpful to know that roughly seven out of every 10 wealthy investors self-identify as philanthropic. According to our research, these figures have been consistent for the past two decades¹ and recent reports from Bank of America² suggest that the percentage may be even higher. This means that if you have a HNW practice, you should expect that at least two-thirds of your clients are charitably-inclined and there’s an opportunity for you to address their interests—which is a win for your relationship. But, perhaps more importantly, if you aren’t helping your HNW clients with philanthropy, they are missing opportunities to mitigate taxes, save money and increase their charitable impact, and may feel as if there’s something lacking in their financial program. The other side of this coin is that if you aren’t doing it, someone else might be. And, if they are and you don’t know about it, it’s most likely happening in an uncoordinated and uninformed fashion, which can have a potential downstream effect.

Critical Intersections with Wealth Management

As wealth management has evolved, an increasing number of wealth management practices use the three disciplines of investment management, tax management and estate planning as their core. So, bringing charitable planning into the fold is easier today than it would be if you were coordinating across three or four external subject matter experts. When charitable strategies are closely coordinated with investment strategy, estate planning and tax management, the outcomes will always be better for the client than they will when any of those disciplines are approached in a vacuum.

Together, these four capabilities—investment management, tax management, estate planning and charitable planning—generate some of the outcomes that are most important to HNW individuals and families:

• They want to sustain or grow their wealth.
• They want to reduce their tax burden.
• They want to ensure that their assets go to the people and causes they care about most

When philanthropy isn’t part of the equation, you are falling short of delivering a world-class client experience that is critical to client satisfaction and your long-term success. When it is part of the process, you can help magnify efforts for higher impact.

Concerns About Family and Legacy

Beyond the goals HNW investors have for their wealth, there are other concerns and interests that relate to their families and their legacies that open you up to a different level of engagement with your clients.

These priorities can be used as an overlay to a client’s core financial objectives to construct a more nuanced and layered understanding of the people you are serving. That said, these goals are complicated and may require a combination of facilitation, tools, and family engagement to be realized. Philanthropy—and various charitable giving vehicles—can be powerful tools for certain clients.

Philanthropy as a Framework

In many families, just a small group of people get complete visibility and transparency into money and finances. And for purposes of control and efficiency, that probably won’t change. But philanthropy is an area that lends itself to broader family involvement and provides a framework for:

• Surfacing shared goals and passions
• Identifying core values
• Multi generational collaboration
• Deploying assets in a way that creates impact
• Getting investments aligned with intent
• Helping younger generations develop the skills that prepare them for bigger roles in the family

Trending Toward a Life of Purpose

At the same time, there are a number of interesting trends happening in philanthropy that create more opportunities for advisors. The first is that need skyrocketed in 2020 as a result of the coronavirus pandemic, widespread racial equity issues and natural disasters. As a result, many funders changed the way they give in response to that need. According to the Chronicle of Philanthropy, online giving exploded³ and our own client survey revealed that around 40% of private foundations reported a change in mission to accommodate emerging needs.⁴

The second trend, as reported by The New York Times, is that the current climate, in combination with the accelerated pace of wealth creation being driven by Silicon Valley, is resulting in a new kind of millionaire — one who wants to use their newfound wealth to live a life of purpose and create social value rather than the excessive lifestyle and consumption that was so prevalent in the early days of the tech boom.⁵

The Philanthropic Affluent are Underprepared

So where does this leave us? In three studies with HNW individuals conducted over the last six years, we found that despite self identifying as philanthropic, this cohort doesn’t have a well-defined plan or relationships with the experts they need to make real progress on their charitable goals, which leaves plenty of room for more
structure, process, and improvement. Additionally, 95.1% of single-family office executives believe that more formal charitable guidance would be in the families best interest—and this is where wealth managers and their specialist networks can make a difference.

Advisor Practices Regarding Philanthropy

In a practice benchmarking study with advisors, we identified two sub-groups—one that considers tax- advantaged charitable giving a major part of their practice and another that said it wasn’t a major part of their practice, but they talk about philanthropy with their clients. The practices are obviously different, but they look identical in a few important areas.

The percentage of clients they work with on the charitable front is similar—which indicates that talking about philanthropy is more important than specializing in philanthropy when it comes to client engagement.

Both segments agree that their charitable clients make many more referrals than the rest of their clients. In some respects, this is not surprising; money can be a taboo subject for a lot of people, but philanthropy is a safe subject for mixed company—family members and non-family members—and often an area of great passion and emotion that sparks conversations and sharing. In essence, philanthropy can create a space and atmosphere where it is easy—and more comfortable—for clients to facilitate those valuable connections for themselves and for you.

To make this a success, there are three things you must do when augmenting your practice to include charitable planning services:

1. Integrate various disciplines under the umbrella of wealth management to create the best financial, tax, estate planning and philanthropic outcomes for your clients.

2. Extend established processes — like discovery conversations, investment policy formation, product evaluations, annual reviews, and periodic check-ins—and other touchpoints that occur in the normal course of business to engage with people around their charitable interests so you can spot which clients care about it and want help.

3. Facilitate the conversations that drive results, relationships, and business — most importantly the interactions between your team and clients, and the ensuing interactions between those clients and their social network that can create a closed-loop sequence that helps drive referrals and business expansion.

Three Cases for Philanthropy

There are three common scenarios where philanthropy can provide a solution to specific challenges, and you may see these within your client base or in conversations with prospects.

1. A planned liquidity event where a business owner or equity holder is contemplating the next phase of life, starting to think about personal legacy and, of course, tax deductions.

2. Leadership change or succession from a strong founder or wealth creator to a more involved, professional collective that has the ability to sustain and scale. This scenario often involves a family-owned business.

3. Family engagement that would benefit from more governance and a framework to help to build shared goals and decision-making rather than a coalition of individual desires. This scenario can also provide opportunities for younger members to develop leadership and financial skills that will serve the family in the future.

So. Many. Opportunities.

Broadening your wealth management practice to engage with clients (and potential clients) around their charitable interests creates valuable opportunities to realize the following benefits:

• Address unmet client needs
• Strengthen and deepen your relationships
• Create better financial outcomes
• Demonstrate value and alignment with your clients most critical goals
• Position the practice to capture newly created wealth
• Open new sources of referrals

In addition to the obvious advantages, these opportunities work together to help evolve your practice from one that’s focused on delivering technical expertise to being an elite practitioner that delivers world-class client experiences.

The post Why Charitable Expertise Should Be Part of Your Practice appeared first on Foundation Source.

• Increased income tax rates
  • Individuals to 39.6% (ordinary) and long-term capital gains (LTCG) and dividends for taxpayers with adjusted gross income (AGI) of more than $1 million
  • Increase in corporate tax rate from 21% to 28%
• Gifts, bequests, trust distributions as capital gains realization events
  • Loss of capital gains“step-up”
  • Gifts and certain trust distributions as realization events
  • 90-year trust realization event
  • $1 million exclusion

THE POTENTIAL IMPACT ON CHARITABLE GIVING

• The top marginal individual income tax rate would increase from 37% to 39.6% for taxable income in excess of the top bracket threshold—as tax rates rise, the value of itemized deductions also rises.
• For taxpayers with AGI of more than $1 million, long-term capital gains and qualified dividends tax rate would increase to match the proposed ordinary income tax rate. For a taxpayer with income in excess of $1 million, rates would jump from 20% (or really 23.8%, including the net investment income tax) to 39.6% (or really 43.4%, including the net investment income tax).

2. The House Ways and Means Proposal

• Return of proposed estate tax changes instead of capital gains tax
  • Accelerate “sunset” of current estate tax levels (effectively dropping in half from $11.7 million to about $5.5 million)
  • No mention of loss of “step-up” or gifts/distributions as realization events
• Income tax changes
  • Highest personal rate to 39.6%; capital gains rate to 25% – 3% surcharge for in come over $5 million
  • Corporate rate to 26.5%
  • Changes to certain cross-border tax rates and rules
• Changes to grantor trusts (pulled into taxable estate)
• IRA changes
  • Increased required minimum distribution for high-income taxpayers with large balances ($10 million plus, and can never stay over $20 million)
• In terms of charitable giving, like with the Green Book proposals, higher taxes lead to a more valuable deduction
• Estate taxes
  • Brings a lot more people into the estate tax net
  • Eliminates a lot of common planning for reducing estates (e.g. grant or trust planning) – Eliminates valuation discounts
  • Makes gifts to charity and certain charitable lead trusts far more valuable

3. The ACE Act

Co-sponsored by Senators Angus King (I-ME) and Chuck Grassley (R-IA)

• Private foundations would no longer be allowed to count grants to DAFs towards meeting the annual minimum distribution of income requirement (MDR) if the private foundation retains advisory privileges.
  • Note: This is not a concern for a terminating foundation or for a foundation that grants to a DAF account over which the foundation has not retained advisory privileges.
• Private foundations would no longer be able to count administrative expenses (for example, payroll, travel, and other similar expenses) of certain insiders towards meeting the MDR.
  • Note: This limitation is targeted only at insiders who are family members of a foundation’s substantial contributors. The payroll and expenses of non-family members would still count towards satisfying the MDR.
  • Note: This rule would still allow foundations to pay salary to and cover the expenses of the targeted insiders—these expenditures would not be taxable expenditures. However, such expenditures would not count towards satisfying the MDR.
• Private foundations that choose to sunset within 25 years would pay no excise tax. However, if such a foundation makes prohibited grants to related foundations, or it opts not to sunset at the point in the future when it is required to do so (after not paying excise taxes for 25 years), the foundation would have to pay the IRS any taxes it saved because of this tax break.
• Private foundations would pay no excise tax in any year in which it satisfies a voluntary 7% payout requirement determined by reference to the value of the foundation’s assets on the first day of the tax year.
• A private foundation that uses DAFs to avoid “tipping” of the public charity status of a donee may no longer be able to do so, as distributions from DAFs will be treated effectively as distributions from the private foundation.

THE POTENTIAL IMPACT ON DAFS

• For non-community foundation DAFs, generally, the legislation would allow a current charitable deduction for cash or marketable security gifts to a DAF only if such gifts are distributed by the DAF to charities within 15 years of the first contribution to the fund and all advisory privileges terminate.
• There are narrow exceptions to these rules for DAFs that are set up at community foundations, but the exceptions apply only for amounts donated up to $1 million or there is a 5% MDR on the individual qualifying community foundation donor-advised fund.

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