Private foundations offer nearly endless philanthropic capabilities and flexibility, yet their perceived complexity can sometimes deter eager charitable donors from starting them. To that end, we spoke with Sunil Garga, chief executive officer of Foundation Source, for a look at the changing nature of foundations and the latest trends in high-net-worth giving. Foundation Source is the nation’s largest provider of management solutions for private foundations. The firm works in partnership with financial and legal advisors as well as directly with individuals and families.
Prince: Who is establishing private foundations today?
Garga: While foundations have traditionally been started by high-net-worth and ultra-high-net-worth individuals aiming to create personal charitable legacies, we now see a wider variety of donors, from couples, to multigenerational families, to young entrepreneurs who’ve amassed wealth early in their careers, and even companies that want to have a more pronounced emphasis on ESG and social responsibility. Despite their diversity, these donors share a common interest: engaging actively in their philanthropy and effecting positive change. They’re a separate lot from those who primarily give through donor-advised funds, which have numerous advantages but don’t offer the complete philanthropic toolkit that’s available with private foundations. Giving through a foundation enables donors to pursue strategic, entrepreneurial and catalytic philanthropy.
Three things that we consistently observe about foundation donors:
• They seek options and creativity: Donors starting private foundations do so for the ability to think out of the box and give creatively. The sky’s the limit when it comes to what’s possible with a foundation, from awards and scholarship programs, to conducting and funding research, to granting directly to people in need (instead of through a charity), to offering program- and mission-related investments.
• They value family unity and wealth preservation: Families of means have numerous reasons to establish a private foundation: tax savings, control over assets and the ability to give back using a broad range of philanthropic capabilities. But for many of our clients, their top priority for starting a foundation is to ensure that their next generation will be responsible stewards of their values and wealth. As a result, we find that many of our clients have an external mission for their foundation, to define what they want to do with their charitable funds, as well as an internal mission, to articulate their intentions to strengthen family bonds, forge a distinctive identity, and optimize time spent together.
• They do a lot with less than you might think: Most foundations are not megadonors like the Bill and Melinda Gates Foundation and the Lilly Endowment. There are about 100,000 private non-operating foundations in the U.S. and only 2% of them have more than $50 million in assets, according to the IRS, yet all of them are making a significant impact with their grantee partners in a wide variety of areas. Even the smallest foundations can make a tremendous difference in the world.
Prince: How are you leveraging technology to make private foundations easier to manage?
Garga: Since our company was founded 20 years ago, technology has played an integral role in helping us support our clients. We pioneered the development of an online management tool for foundations to use in conjunction with our professional services that redefines the way foundation operations are conducted and, most importantly, helps engage family members and the board.
Since then, our technology has evolved with our clients’needs. Just as every family is different, so is every foundation. While many of our clients prefer to fully outsource the administration of their foundation to us, others opt for a hybrid model in which they seek partial support from us alongside other experts such as attorneys and accountants. Others choose to operate with minimal external support. For these latter two scenarios, we offer technology tools that can be used on a self-service basis to help create cohesion among all parties, provide a centralized view of foundation activity and automate the day-to-day work of running the foundation.
Regardless of how a foundation chooses to operate, most deem strategy and grantmaking their top priorities so their capital can be deployed as efficiently and effectively as possible. As such, we have developed our tech-enabled solutions with this in mind so philanthropists are able to pursue their missions while receiving the level and type of service that’s most desirable for them.
Prince: In your experience, what impact has the COVID-19 pandemic had on charitable giving?
Garga: We’ve been exploring this question closely. We recently analyzed the grantmaking activities of more than 1,000 private foundations over the past 24 months to understand how and where wealthy families are focusing their giving. Here’s what we discovered with respect to the pandemic:
• They will act swiftly in times of urgent need. After the United States declared a national emergency in March 2020 due to COVID-19, foundations nearly doubled their year-over-year grant volume in April from 5.6% to 9.7% of total activity. They also increased their giving to human services and public/societal benefits charities, regardless of whether or not it aligned with their usual missions.
• They're loosening the reins on how their dollars are spent. Typically, philanthropists carefully define how they want their foundation dollars to be used by issuing “specific-purpose” grants. However, as they endeavored to meet the urgent needs in 2020, they gave more unrestricted “general purpose” grants to afford charities maximum flexibility in how to use the funding. At 46% of all grants in 2020, it’s the most balanced split we’ve seen since 2010 when general purpose grants represented just 32% of giving. And given the recent unrestricted grantmaking activity of billionaire MacKenzie Scott and the Chan-Zuckerberg Initiative, we’re considering this behavior a trend.
For a complimentary PDF copy of Elite Wealth Planning: Lessons from the Super Rich request the book from princeasoc@protonmail.com
