The Fortunate Many: Family Foundations Are the Gift that Keeps Giving

For the rich, a family foundation has several attractions. Paul Davis U.K.

Family foundations first appeared in the Gilded Age, when industrialists like Andrew Carnegie and John D. Rockefeller amassed unprecedented wealth. At the time, there was skepticism—some thought these new, tax-exempt private companies served the interests of the founders more than the needy. Trust-busting Teddy Roosevelt said, in reference to Rockefeller, that "no amount of charity in spending such fortunes can compensate in any way for the misconduct in acquiring them."

Over the past 100 years, the family foundation earned broader acceptance. Recently, though, the rapid growth of new fortunes has led to a big jump in the number of charitable foundations, which has raised new questions. Today it's not just the Bill & Melinda Gates Foundation but also more than 40,000 other family foundations that advance the mandate of their founders.

For the rich, a family foundation has several attractions. First, foundations are mostly tax-exempt, so there is a minimal tax burden. Equally important, control of the funds stays in the family. The founder decides who is on the board, how the money will be managed and where the money will be spent. And there are few restrictions. Foundations can't lobby or support candidates for public office, and they're not allowed to engage in self-dealing. But in practice there is limited oversight. Foundations tend to retain the majority of their tax-exempt funds, since they are required to spend only about 5 percent of their endowment each year. According to the Foundation Center, family foundations are thought to control around $300 billion in total assets while spending $20 billion or so each year. Managed conservatively, a foundation might last forever.

Family foundations are a distant concern for the millions of people (barely) saving for retirement or struggling to put their kids through school. But for a small but growing class, it's a grab at immortality.

Source: The Foundation Center