Securing Your Family Legacy

Melissa Olszak, CFP®, CFA® BY: Melissa Olszak, CFP®, CFA® 09.25.17

A Smart Approach to Passing on the Family Foundation

There are always stark differences between parents and their children. These differences are what make your children unique individuals; however, when you don’t see eye to eye, it can create some turmoil.

Passing along a family foundation to the next generation doesn’t always go smoothly, which may be because the priorities of the second generation can be different from those you have fostered over the years, or because your children simply aren’t interested in being involved in the foundation.

While there are potential roadblocks to passing along a family foundation to the next generation, there are ways around them that can keep your foundation intact and flourishing into the future.

The Importance of Preserving the Family Foundation – How it Relates To Your Legacy

A family foundation is one that is funded by members of a family and run by a board comprised of at least one of those family members. Outside of certain tax, legal and investment incentives, the key benefits of a foundation are the ability to control donations and to have a significant impact on the causes and initiatives that matter most to the family.

Family foundations also offer the ability to establish a legacy for a family and provide the family with a means to foster continued family relationships, while also passing on family values and knowledge. This approach works well if the family remains involved and passionate from generation to generation. But without the right setup to stand strong against disputes or disagreements, there runs the risk of the foundation falling apart.

Here is what you need to know to begin the conversation with your children and grandchildren, and prepare your foundation for the future.

  1. Involve younger generations early and openly.

If you want your children and grandchildren to be involved in the foundation into the future, it’s important to prepare them early. This preparation should include informing them about the core missions of the foundation, and educating them about why the foundation’s initiatives are meaningful. Having this dialog early on allows time for discussion and a sharing of ideas or concerns, which helps diffuse any potential disagreements or conflicts going forward.

Especially if you have young adults who would become involved, it is always good practice to prepare them for the act of a philanthropic lifestyle or at a minimum expose them to that lifestyle to see if they share the same passion for it. (At the same time, you get the benefit of exposing them to a world of investments, and tax and legal requirements, which can be a great learning opportunity for younger generations). Regardless of whether they become a board member or officer, they can always be charitable if they understand the benefit of giving.

  1. Establish roles and involvement.

If you’re actively running your family foundation, you’re making the decisions as to how the funds are used today. When making efforts to prepare the next generation, there are two important elements to consider:

 

  1. Be open-minded.

One of the many reasons the infamous Rockefeller Brothers Fund has remained so successful over so many generations is the family has been open-minded about, among other things, looking outside the family for board members, and about the ideas and initiatives of new or existing members.

Non-family appointees can be considered if there are individuals you trust highly and who have been heavily involved in family affairs over the years. They may also be considered if the family members are not as financially sophisticated and want a professional to help them with the investment, tax and legal requirements of managing a family foundation.

Avoiding Conflict Among Family Members

Because there can be differing ideas between you and your descendants, it’s important to be flexible and allow everyone’s opinions to be out on the table. There are some primary issues that can arise when discussing passing on the family foundation, but these issues don’t have to spell trouble for the foundation.

It is always wise to work with a financial advisor to help you sort through these situations, as they can provide clarity and act as a mediator to work through these conversations and decisions. Here are some possible scenarios:

You believe you know best as to the direction and activity of the foundation and are unable to agree with a younger generation taking things in a new direction.

In this scenario, your advisor might suggest you spend the foundation’s resources in your lifetime so you can see the impact you feel strongly about while you are still alive. However, if the goal is to pass on a family legacy, it is a good idea to sit down with your heirs and talk things through. If you’re able to be open and understand their motivations for the foundation’s future, you may discover they are not much different from yours, or you may discover that while they are different, they are still something you feel comfortable with the foundation supporting.

The younger generation is busy or lives far away and has difficulty putting in the time to get involved.

In this scenario, you could design the trustee provisions such that a child or further descendant could temporarily resign from serving for the foundation and re-engage in the future when they can devote more time to managing the charitable initiatives. Another option is to use technology to help support remote meetings, which allows family members living in different places to still connect regularly while reducing a travel burden. You could also design the foundation so each child could have discretion over a certain amount of the annual distributions, and therefore could support local community initiatives that are important to them and that foster their continued engagement.

Your family has experienced a loss, a rift, or another significant change that has caused some upheaval on the foundation board.

In this scenario, your financial advisor would likely tell you to find an individual (it could be someone in the family or a professional wealth counsellor), who could act as a neutral party to help keep things on an even track through difficult times and help guide the family foundation back to a healthy organization and something family members can take pride in fostering for future generations.

When embarking on the process of securing your foundation for the future, the most important thing to keep in mind is to remain true to your values, whether that is to support certain types of charities or simply to use the family foundation as a means of furthering family continuity and legacy. There are distinct reasons why your family has chosen to set up a foundation, and those reasons should govern your decision-making and your approach to others’ ideas.

Again, working with a financial firm like Lake Street that is skilled in high net worth family office advisement will ensure you can work through the multitude of scenarios that could occur, to secure your family’s legacy for decades to come.

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