| When most Minnesotans think of foundations,
they immediately think of the big names: McKnight and Bush, or the
corporate foundations like Medtronic and Target. Many people are
aware of the Minneapolis and St. Paul Foundations, but don’t
quite understand what those are or how they work. Others see names
like Wasie, Phillips, and Wilder on hospitals and housing projects
and know in some vague way that "foundations" made them
possible.
For the average Minnesotan, starting a
private foundation is a mysterious rite reserved for an elite of
the fabulously wealthy.
Think again.
Today there are more than 625 private
foundations in the State. This does not include the hundreds of
donor-advised funds that operate as "mini-foundations"
under the aegis of the Minneapolis Foundation, the St. Paul
Foundation, community foundations that share in the Minnesota
Foundation, as well as religious community foundations. In fiscal
year 2000, the Minneapolis Foundation saw the creation of a
record-breaking 58 new donor-advised funds. Scores of charitable
trusts are administered by commercial banking institutions. Then
there is the recent popularity of donor-advised funds residing
with foundations operated by mutual fund companies.
The chances are slim that all of the
families who fund these philanthropies are fabulously wealthy.
Definitions of wealth are constantly
changing and will change even more as the greatly-heralded huge
inter-generational transfer of wealth progresses between now and
2052. Paul Schervish at the Boston College Social Welfare Research
Institute estimates that amount to be a minimum of $41 trillion.
Schervish points out that families with net
worths of $1 million or more made 46% of all charitable gifts in
1994. He defines those capable of making sizeable endowment gifts
as those with net worths in excess of $5 million. This is the
group that has the means to start new foundations. Do they have
the motivation to do it? What advice do they need from attorneys
to make wise decisions for joining the ranks of the Phillips’
and Wasies?
The profile of philanthropists
Dave Senger, partner at the Minneapolis law
firm of Moss & Barnett, has advised dozens of clients
regarding new family foundations. The endowment size of his
average client’s foundation at the time of incorporation is
about $250,000.
What are the circumstances that lead Senger
to recommend a family foundation as part of his client’s estate
plan? He says that the common factor in all family foundations is
the desire of the client to maintain control over the foundation’s
investments and grants. Most of Senger’s clients are
entrepreneurs who are hesitant to relinquish any control. Second
factor: the ability of clients to begin working with their
families in connection with charitable giving. Clients often have
regular family meetings in which all members of the family have an
opportunity to provide input regarding grants. Third is the
ability to make create their own programs for granting
scholarships and awards to worthy individuals. Fourth is the
ability to give anonymously. A fifth factor is to create a vehicle
for larger contributions upon the death of the client. Clients are
able to structure the foundation and create policies and
traditions that will be carried on upon their deaths.
Minneapolis attorney Ron London points out
that one of the developing consequences of the passage of the
Economic Growth and Tax Relief Conciliation Act of 2001 is a
re-examination of the role of tax law in estate planning for those
with high net worths.
What is the unique role of the attorney in
advising and planning family foundations?
Asking five key questions:
London asks clients considering private
foundations to consider five key questions:
- What is the mission of the foundation?
He
urges clients to look beyond their families to visit with
other foundation trustees to get an idea of how they developed
their missions.
- How will the foundation be governed?
Should
it stay in the family forever or should provisions be made for
outsiders to become involved?
- How will it be managed?
The
decision to hire professionals to assist family members can
have positive effects for administration and compliance. How
far should they be involved in program decisions?
- How will its assets be managed?
The
future of the foundation, in both its programmatic and legal
activities, depends on competent management.
- How long should the foundation
continue?
If the foundation is
to continue beyond the life of the client, a plan must be
developed to train the next generation of trustees.
"The information gathering and
discussions that go into making these decisions will benefit the
founders, future generations, and the charities the founders want
to benefit," London states.
Benjamin Skjold, partner at Duckson-Carlson
in Minneapolis, agrees with London’s approach and adds, "It’s
essential for the attorney to use active listening and
interviewing skills to gather and then understand the complete
factual scenario. Then, along with other professionals like
philanthropy advisors, the team can assure that the client’s
long-term objectives are realized by this major investment."
Who else gets involved?
. Philanthropy advisors, neutral arbitrators
who work with families considering private foundations and
donor-advised funds, are involved in developing the programmatic
focus and administration for new philanthropies. Accountants offer
advice financial procedures and provide accounting and tax
services for the new charity. For the very wealthy, a figure that
Schervish pegs at the 0.08% of families with net worth in excess
of $10 million, some of the administrative mechanics can be handed
over to the director of their family. Financial planners,
including stock and insurance brokers, may be involved in the
long-term life of the private foundation by managing its assets,
but usually do not serve as advisors in other administrative
areas.
It is up to each family, with the advice and
assistance of their attorney and other professionals, to decide
whether to follow this route or to break new ground with a private
foundation. Either way, the family, our community and our society
all benefit.
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