How to Establish a Philanthropic Legacy for Your Family

Giving to others is a wonderful way to support causes that are important to you and to bring your family together.  

First, let’s start with the basics: What does “philanthropic” mean? The word philanthropy has its roots in the words for love and humanity.  

How can you be philanthropic? You can act in ways that improve the greater good. Typically, that means donating money to help causes and organizations with their efforts. To help make sure your efforts endure, your family can consider launching a foundation. 

Step 1: How to Start a Philanthropic Foundation 

If you decide to launch a foundation in your family’s name, you will want to set it up correctly from the start. The first step is to create a corporation, trust or association that your foundation can be backed by. The IRS has great tips on how to get started and the process you should follow to be legitimate. You’ll want to take a few steps to make sure you position your foundation to endure and thrive. 

Step 2: Decide What Your Foundation Will Support

You may have strong feelings about who or what your foundation will benefit. For example, if you were able to attend college thanks to a scholarship, you might want to fund scholarships for people from similar backgrounds. If you’re concerned about the environment, you might want to support organizations that protect forests or clean water. 

You may want to involve your family in this decision. Listening to everyone’s ideas and why they’re passionate about the causes they support can be a great way to bring your family together. 

It’s a good idea to create a mission statement for your foundation. That way, future family members can understand the “why” behind your philanthropy. 

You may want to think about: 

• Whether you want to support individual people or organizations
• If you want to donate to existing programs or create your own
• How you decide who to support

Step 3: Choose and Create a Structure 

You can set up your family foundation as a trust or a nonprofit corporation.  

• A trust may be easier, but less flexible. Once you set it up, you’re not able to make many changes. To set up a trust, you need to create and sign a trust agreement.
• A nonprofit corporation tends to be more complicated to create, but it gives you more flexibility to make changes in the future. To set it up, you need to incorporate it with your state government.

Either way, you also need to apply for an employer identification number (EIN). This is like a Social Security number, but for a foundation or business instead of an individual. 

Once that’s done, you can file for tax-exempt status, which will allow you to donate tax-deductible gifts and limit or eliminate the taxes your foundation pays on income. 

It’s important to decide how you want your foundation to run. If you have a trust, you’ll need trustees, and if you have a nonprofit corporation, you’ll need a board of directors. With a family foundation, you may want to include key family members like your spouse, parents, siblings, children and grandchildren.  

You may also want to include others who can help lead your foundation, such as professionals in the area your foundation supports, or representatives who can stand in for young family members. 

Step 4: Set Up Funding and Oversight 

You may want to launch your family foundation with a donation of cash, stocks, bonds or other assets. You may also want to include your foundation in your estate planning and encourage other family members to do the same.  

The foundation might donate the proceeds from these initial investments, or you may want to contribute more to it regularly. You may also want to invite outside donors to participate. 

Once your foundation is up and running, you’ll need to make sure you are following rules and regulations and reporting to the IRS. You may want to work with a lawyer, accountant or other professional to make sure your foundation is operating as it should. 

Get Advice From a Professional 

Creating a family foundation is the start for a philanthropic legacy that can extend for generations, supporting causes that are important to you and building a culture of generosity. Reach out to Farm Bureau for advice on how to make it happen.