Growing Pains and Possibilities

Planning for Growth in Your Family Foundation

Let’s imagine a typical family foundation started by Mom and Dad in order to make charitable contributions each year to a small constellation of nonprofits in their community.

Fast-forward a couple of decades and Mom and Dad have achieved more financial success than they ever expected. While undertaking their estate planning, they have ascertained that even after they take care of their children and grandchildren, there will be a substantial amount left from their holdings to donate to the foundation. In fact, Mom and Dad anticipate that upon their death, the foundation’s assets will increase from $3 million (their current value) to approximately $40 million. They realize, however, that this eventual windfall will come with some planning challenges: What should a foundation do when, almost overnight, their assets jump dramatically? How should board members plan for such an event and carry Mom and Dad’s foundation into the future?

In addition to receiving assets resulting from testamentary plans, there are other reasons why foundation assets might grow quickly. A family might sell a closely held business and decide to dedicate some or all of the proceeds to their foundation. Alternatively, a family may have other assets that they wish to contribute in order to reduce their tax liability, such as real estate or low-cost basis stock. Any of these events can change the fundamentals of foundation operations and need to be planned for well in advance.

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