{"id":3615,"date":"2014-02-28T10:28:46","date_gmt":"2014-02-28T14:28:46","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=3615"},"modified":"2014-02-28T10:28:46","modified_gmt":"2014-02-28T14:28:46","slug":"family-foundations-let-affluent-leave-a-legacy","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=3615","title":{"rendered":"Family Foundations Let Affluent Leave a Legacy"},"content":{"rendered":"

\"the-new-york-times<\/a>STEPHANIE Cordes, a graduate of the University of California, Santa Barbara, has a present from her father, Ron, that she treasures. It\u2019s a handmade pink scrapbook, titled, \u201c5 Life Lessons From Dad.\u201d<\/p>\n

Inside are whimsical photos of her with friends and family alongside typed pages containing his simple guidance. The chapters are: \u201cSeek your passion.\u201d \u201cDo your best.\u201d \u201cGood enough is never good enough.\u201d \u201cNo excuses.\u201d \u201cMake a difference.\u201d \u201cGo for it.\u201d<\/p>\n

She was moved. But what really touched her was a letter he wrote to her last fall, which concluded with: \u201cYou are my legacy.\u201d<\/p>\n

And she is, in more ways than one.<\/p>\n

In mid-January, Ms. Cordes, 24, quit what she had called her dream job, working at Cond\u00e9 Nast, as an advertising sales assistant, to work full time for the\u00a0Cordes Foundation<\/a>, the nonprofit family foundation her father created when he and his two partners sold their firm, AssetMark Investment Services, to Genworth Financial in 2006 for $230 million.<\/p>\n

\u201cI am going to be the legacy of the foundation,\u201d said Ms. Cordes, who is an only child. \u201cIt is really important that I am involved because it is going to be mine eventually.\u201d<\/p>\n

According to the most recent statistics, the number of family foundations like the Cordes Foundation has exploded since 2001. There are now over 40,000 family foundations in the United States, making grants totaling more than $21.3 billion a year, up from about 3,200 family foundations doling out $6.8 billion in 2001, according to the Foundation Center in Washington.<\/p>\n

These nonprofits are on the upswing for several reasons. First, friendly tax breaks make the charitable vehicle appealing. And it offers philanthropists who want more control over their giving a way to give with fewer restrictions than would come with a donor-advised fund or writing a check to an established charity.<\/p>\n

Then, too, there is often an underlying desire for baby boomers to instill in their children the significance of giving and compassion for those less privileged. A family foundation can curb a sense of entitlement that may come along with inheriting wealth.<\/p>\n

The Council on Foundations defines a family foundation as one whose funds are derived from members of a single family. At least one family member must serve as an officer or board member of the foundation, and as the donor.<\/p>\n

And you don\u2019t have to be a billionaire to create one. Sixty percent of family foundations have assets of less than $1 million.<\/p>\n

\u201cWe are not the Gates Foundation,\u201d said Mr. Cordes, 55, who started his foundation with $10 million of the proceeds from the sale of his firm. \u201cWe have several less zeros on our balance sheet.\u201d The challenge is \u201ctrying to figure out how you can really have an impact with a somewhat more modest amount of money,\u201d he said.<\/p>\n

\u201cAs a corporate C.E.O., I was involved in philanthropy,\u201d he added. \u201cMy wife, Marty, and I gave money to lots of different things, but when I sold the company, I realized that I was able to open some personal bandwidth for myself that would give me an opportunity to have more direct participation in philanthropy.\u201d<\/p>\n

Instilling the value of giving back in their daughter was certainly part of the plan. Stephanie was 16 when her parents started the foundation. She knew that her father was selling the business, but she didn\u2019t have any concept of family wealth, or the amounts involved, said Mr. Cordes.<\/p>\n

\u201cWe never tried to push her into the foundation, but we wanted to put her in a position where those opportunities were available if she wanted to do them,\u201d he said.<\/p>\n

Establishing the foundation has also allowed Mr. Cordes, like many baby boomers starting an encore career midlife, to ponder the question of how to \u201cmove from success to significance,\u201d he said. \u201cHow do you leave a legacy?\u201d<\/p>\n

Mr. Cordes beams with pride that Stephanie is committing herself to following that legacy, and will soon take a seat on the foundation\u2019s board, which consists of her parents and four outside members. \u201cI cannot think of anything cooler than that,\u201d he said.<\/p>\n

Creating a foundation requires much more than money. Among other things, foundation founders must familiarize themselves with the myriad tax and other regulations involved and carve out the time required to review programs for funding.<\/p>\n

Traditionally, the chief complaints about creating a family foundation have been the time and cost involved, but that seems to be getting under control as more firms specializing in advising families are cropping up.<\/p>\n

Costs vary by asset size and level of service and typically run the gamut from $5,000 for a plain vanilla setup up to around $35,000, said Elliot Berger, managing director of Arabella Advisors, a firm that specializes in philanthropic strategies and foundation management. Another, Advisors in Philanthropy, a nonprofit based in Chicago, offers web seminars and other educational and networking opportunities.<\/p>\n

Ron and Marlys Boehm of Santa Barbara, Calif., were able to set up their $1 million family foundation, the\u00a0Boehm-Gladen Foundation<\/a>, in three days for around $10,000, with the help of Foundation Source, a private foundation advisory group, based in Fairfield, Conn.<\/p>\n

\u201cOur adviser made it very painless and quick,\u201d Mr. Boehm said. \u201cAlthough family foundations have grown in popularity, we found there were still not a lot of advisers who are knowledgeable about the ins and outs,\u201d said Mr. Boehm, 60, chairman, chief executive, and primary shareholder of the publishing firm ABC-CLIO.<\/p>\n

Annual administration fees can range from 0.86 to 1.62 percent of total assets, depending on the size of the fund and whether there\u2019s paid staff, according the 2013 Foundation Operations and Management Report by the Association of Small Foundations.<\/p>\n

And, by law, you must give away around 5 percent of average monthly assets each year, or face a 30 percent excise tax on whatever portion of it has not been distributed within a year.<\/p>\n

Moreover, there\u2019s the Internal Revenue Service\u00a0Form 990<\/a>\u00a0to file annually. Net investment income of private foundations is generally taxed at 2 percent, but often is pared to 1 percent through various tax strategies.<\/p>\n

These I.R.S. filings are not to be taken lightly. In the past, the tax agency has scrutinized family foundations for a variety of abuses, including family members paying themselves more than $1 million to serve as foundation officers or charging exorbitant management fees. Bottom line: Auditors look for red flags that a family member is using funds as a personal piggy bank.<\/p>\n

A lack of privacy can be a problem with a family foundation; all of your information is public information and your 990 tax form can be viewed by anyone \u2014 for example, via the Guidestar database.<\/p>\n

The upside: \u201cThe main advantage to a family foundation is control and flexibility,\u201d said Mr. Berger of Arabella Advisors. \u201cYou have control over who is on the board, how the money is granted, how it is managed.\u201d And you have\u00a0the flexibility to\u00a0convert the foundation to a public charity in order to attract other funders to a particular cause. If you\u00a0no longer feel the need to have a foundation, you have the ability to transfer the assets to a donor-advised fund.<\/p>\n

If you want to be anonymous, a donor-advised fund is better. A donor-advised fund allows you to create a charitable account, say $5,000 to $25,000, usually through a financial services firm, like a\u00a0mutual fund<\/a>\u00a0or brokerage firm. You allocate grants under an umbrella name, like the Jones Family Fund, but it is not considered public information. You can also avoid the costs and headaches of creating a foundation.<\/p>\n

The fund companies take care of most of the administration and management. The three titans are\u00a0Fidelity Charitable<\/a>,\u00a0Vanguard Charitable<\/a>and\u00a0Schwab Charitable<\/a>.<\/p>\n

The drawback to a donor-advised fund is that you typically do not have as much say in specific investments, and the money must be earmarked for a recognized\u00a0501 (c) 3 public charity that is United States-based. Also, there are rules about how many generations can\u00a0participate\u00a0in\u00a0grant-making.<\/p>\n

Family foundations can walk a tightrope. On one hand, they can be a vehicle to teach children and grandchildren about leaving the world a better place. They can also bring family members together under a mutual mission, purpose and a passion.<\/p>\n

And the parenting opportunities and learning that goes along with travel to check out potential grantees around the globe is something without a specific value. \u201cThe life lessons we pulled out of it for the kids though trips to rural villages in Africa, for instance, have been truly unexpected,\u201d Ms. Boehm said.<\/p>\n

\u201cBut when there are several siblings and multigenerations, squabbles can become a thorny issue,\u201d Mr. Berger said. You can\u2019t ignore \u201cthe groan zone,\u201d he added. \u201cWhat are the mechanics in place to deal with a divergence in opinions?\u201d<\/p>\n

\u00a0Read the original article here<\/strong><\/em><\/a><\/p>\n

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