Fundraising From Family Foundations: An Introduction

The next generation is inheriting twice as much as a decade ago, which means that nonprofit organizations must learn to cultivate younger donors for successful fundraising in the short- and long-term. In fact, approximately $84 trillion is transferring from Baby Boomers to younger generations over the next several years. Engaging family foundations will ensure that your nonprofit is building relationships across generations as the Great Wealth Transfer takes place.

In this article, we help you understand how family foundations function and how to leverage them, among other methods of family philanthropy.

family foundations Are Growing in Impact

Families are reflecting on their purpose and practices. Many are now increasing their annual payout rates by making larger, long-term, and more flexible unrestricted gifts, predominantly through family foundations. Others are examining their family’s beliefs that have been upheld for generations in order to respond to a contemporary and ever-changing landscape.

Nonprofit organizations must cultivate this new wave of donors – a more diverse generation that is making their own wealth while inheriting significant assets and has already shown different interests than those that came before them. This shift in mentality can rock the boat of nonprofit relationships with these high-net-worth families.

Grounded in values and shared beliefs, families are coming together to make their mark – establishing a powerful legacy through family foundations and philanthropic impact made across the community and the world. The definition of a family foundation can look different from family to family, ranging from:

• Two individuals or 100
• One generation or 20
• An established governing body or philanthropic decisions being made organically once a year
• Managed solely by family members or including community voices
• Engaging all generations in decision making or only the matriarch/patriarch of the family

Every family is unique and should be treated distinctly from their peers. Through family foundations and philanthropy, families are bonded – they come together, learn from one another based on individual interests, and build a tradition of giving back to the causes that matter most. While family foundations usually start with a single vision, it grows over time to include the vision of not only family members, but also other community members.

Effective family foundations and philanthropy are informed by the following principals:

• Accountability: Ownership over the impact made across the community including reflection/assessment.
• Equity: Commitment to learning, breaking old habits and taking action to reduce or eliminate inequities across staff, family, grantees, and the community.
• Reflection and Learning: Address difficult internal and external questions and sharing learnings broadly – resulting in a shift in impact strategies.
• Relationships: Build relationships grounded in trust, transparency, breaking down power dynamics and leading with empathy.

What is a family foundation?

A family foundation is a private foundation set up by a family, funded with family assets and often run by family members who determine how assets will be used to meet their mission. A foundation has no required length of existence and can shift as the family’s composition and charitable focus changes. Each year, at least 5% of their net investment assets must be distributed to charity. About 50% of private foundations in the U.S. are family foundations.

Inside philanthropic families and multigenerational giving

Family foundations are not always simple. Parents, children, and their philanthropic institutions must address a number of challenges and reflect on key questions as they determine their purpose, strategy, legacy and operations for their collective philanthropy.

Families often face the following challenges while managing their foundations and philanthropic initiatives:

• Addressing the tension between individual versus collaborative philanthropy.
• Remaining nimble to try new practices that create deeper impact and respond to the community.
• Embracing a dialogue around power and privilege that focuses on equity.
• Considering the role of those outside the family when it comes to philanthropic decision making.
• Identifying how evolving technology can affect traditional ways of giving and family engagement.

Families often consider questions like the below while managing their foundations:

• What is our motivation for engaging in philanthropy?
• What values do we cherish?
• What outcome and impact are we hoping to achieve?
• What percentage of family wealth are we willing to give? What percentage of our wealth do we need to live comfortably?
• How can we make gifts that meets our needs and the needs of those we want to serve?
• How do I work with grantees? What is my role versus what is theirs?
• What philanthropic role, if any, should the next generation play?

How can nonprofits engage with family foundations and family philanthropy

Nonprofits have an opportunity to be proactive in building relationships with multigenerational families while leveraging relationships with family or community foundations and well-known wealth advisors to advocate for the organization and open the door to philanthropic families.

Six ways to prepare for engaging a family foundation:

1. Assess your current donor base — focus on access, affinity, and ability. Prioritize donors that have made gifts through a DAF or family foundation.
2. Research and identify family foundations whose vision and priorities align with the organization’s mission and programs.
3. Utilize existing relationships with younger generations to gain access to additional family wealth.
4. Ensure your organization has mapped out transformational funding opportunities with defined outcomes.
5. Elicit discussion with high-net worth individuals and their families to build trust, transparency and alignment with your organization. Sample questions to consider for discussion include:
   • How do you and your spouse/family make your philanthropic decisions?
   • How are you hoping to engage your children/family in your philanthropy?
   • If you were to accomplish only one thing with your philanthropy, but it would be your legacy, what would that be?
   • Is it important to you to be active in the mission of the organizations you support (i.e. volunteering, attending events)?
   • Through your philanthropic investments, how would you define success?
   • Out of all your philanthropic investments to date, what has brought you the most joy?
6. Leverage opportunities to engage across generations. You may consider the following three options for personalized outreach:
   • Experience the Mission in Action: onsite tours, events, volunteer days
   • Volunteer Leadership Opportunities: board involvement or event hosts
   • Communication/Outreach: Story telling through impact or utilization of social media

Other Forms of Family Philanthropy

Selecting a charitable vehicle or vehicles is one of the most important choices a family makes to support their philanthropic goals. If not a family foundation, the following vehicles are tools or entities established to manage a family’s philanthropic resources and achieve social impact.

Family Office

Family offices are private entities that manage the personal and financial affairs of wealthy individuals and families with assets at or above $100 million. Although philanthropy isn’t the primary focus of a family office, they can facilitate philanthropic decisions through outright gifts, grantmaking, impact investing, and other means. About 71% of family offices are engaged in philanthropy, but only 41% have a philanthropic strategy established.

Donor Advised Funds (DAF)

A low-cost opportunity to manage one’s philanthropy. This vehicle allows families to give anonymously if they choose. A sponsor organization, such as a community foundation, manages and administers DAFs, offering families expertise and guidance on which organizations to support. Families receive an immediate tax deduction for what they contribute to a DAF even if the gift comes at a later date. Grants from DAFs increased 9% ($52.16B) in 2022, a new high.

Individual Giving Across Generations

Some families value philanthropy and have yet to set up a formalized structure or have no interest in exploring complex giving vehicles. Multigenerational gifts can still be made outright to a nonprofit by having family members agree on a charity they care about and each making a separate contribution to it – these gifts can vary in size depending on the individual’s capacity.

Nonprofits can effectively engage family foundations

Every family is unique. One’s financial and philanthropic goals will look different so we must enter every engagement with curiosity. Family philanthropy takes time and effectively engaging across generations can take years before seeing a significant gift come to light. We can control the experience we provide families and the relationship we offer them with the organization. Always lead with donor intent and remember to view yourself as a partner on a long journey of achieving transformational impact through philanthropy.