Financial advisors should help wealthy clients plan for giving money away after they establish a private foundation, and not just help in creating the foundation and investing its assets, according to Foundation Source, a resource and administrator for private foundations.
Advisors often hesitate to get involved in the grant making part of a foundation, leaving it up to the creator and the board to make those decisions. But an advisor can play a vital role in helping to translate the big picture goals into smaller, achievable steps that will fulfill the mission of the foundation, the organization said.
Foundation Source recently published a whitepaper, “Where Mission Meets Money,” on how advisors can counsel their clients on formulating a spending plan for their private foundation.
“This is a great way for advisors to develop a deeper involvement with their philanthropic clients,” said Page Snow, chief philanthropic and marketing officer for Foundation Source. “The more an advisor can understand about budgeting for foundations, the better service they can provide to their clients.”
Snow advised starting with the 5 percent minimum that must be given away each year and then dividing the money into buckets. Some foundations will want to grant more than the 5 percent, she added.
One bucket should be devoted to the main mission of the foundation. Grants from here would go to those areas that the board wants to focus on.
Another bucket should be for the historical interest of the foundation, meaning the goals established by the founder and spouse. “This establishes the amount that should always go to the things that Mom and Dad wanted,” Snow said.
Some foundations find it helpful to set aside a portion of the grant money for an individual’s special projects. This keeps everyone involved in the foundation. “The second generation may not have the same resources as the founders, but they still do not want to dip into principal,” Snow said.
Another bucket can be set aside for sudden opportunities, similar to venture funds. The money is used to give grants to unexpected causes that crop up or to emergency situations like natural disasters.
Finally, some money has to be set aside for operating expenses, including such things as visits to sites where money may be needed, or hiring experts to educate foundation members on a grant-making opportunity.
“The advisor can act as the counselor who helps think through the options,” Snow said. “This work can also help avoid problems between board members in the future. When there is a plan in place, you know everyone is operating off the same page.”
Advisors should also determine what risk profiles are appropriate, depending on if the foundation’s money is to be spent down over a period of years or if it is to exist into perpetuity.
“Advisors are often nervous to get involved in the grant-making work, so [establishing buckets] is a perfect way for them to get involved,” Snow said. “It is something the advisor can bring up at the first board meeting.”