Succession Planning for Family Foundations

Oftentimes, when a charitable family foundation is created, little thought and no documentation is made to prepare for eventual succession of the foundation to future generations.

This post will describe some key governance and documentation strategies to consider when planning for the succession of your Canadian private charitable foundation.

Circumstances change, and so a private foundation also needs to adapt

Make plans and document them. Does the family foundation intend to exist forever or for a limited time? Is there a specific goal of the private foundation that will determine its lifespan?

Who cares?

Identify who cares about the family foundation and what their interest is. Some family members don’t really care about the family foundation, but others are passionate about it. Some family members might have particular interests and skills that support the family foundation, while others might have complementary interests and skills. Identify who can contribute and how they can contribute, make plans with these complementary interests and skills in mind.

Incorporate new ideas

The next generation may have innovative ideas for making a charitable impact and solving charitable issues that are different from the foundation’s current methods of operation so support the foundation’s succession plan by incorporating the ideas of next generation family members.

Document Succession

A “do nothing” approach to private foundation succession risks having the capital and ideas being stewarded by the family foundation lost to future generations. So, if the goal of your family foundation is to continue for future generations, then a plan for succession must be made. If no plans are made, those outside the family with an interest in the foundation may assume control.

Board composition

An easy way for a family to maintain control over a family foundation is by ensuring that family members comprise at least most of the board members. Some private foundation boards contain mostly (or all) family members and others include some non-family members. Maintaining a board with a clear majority of family members ensures that when any individual family member dies, the rest of the family still maintains a clear board majority. When a family member dies or resigns the remaining family members can re-constitute the board for the longer term.

Document succession in the foundation by-laws

Many private foundations do not have documented succession plans. Just like most Canadians do not have a will, many private foundations fail to prepare for the death of family board members. This risk can be mitigated when private foundations create by-laws that outline how governance will change following the death or resignation of family board members.

Board members can also provide instructions to executors in their personal will. Doing this provides executors with instructions about how to deal with a private foundation, especially regarding the death of a sole trustee.

Not just legal stuff

More important than technically documenting succession is the hard work of preparing the next generation of the family to continue the charitable purpose of the family foundation. This is far more important compared to documenting the rules when someone dies, because the more family members who are engaged with and can contribute to the family foundation, the more impact the family foundation can have in both personal and charitable ways.

Learn from experience

Without a working knowledge of a family foundation’s mission and how it operates, it can be difficult for the next generation to advance the foundation’s mission. When family members aren’t actively engaged with the family foundation, there is a greater risk that the foundation will be captured by professional managers.

By incorporating the next generation of the family in the foundation’s operations, it will better prepare the next generation for eventual succession of decision making. Give the next generation responsibility for projects that further the mission of the family foundation while also leveraging their skills and perspectives.

Why do we want the next generation involved?

Not surprisingly, the answers to “why” and “what” will likely determine the strategies each family chooses when planning the succession of their family foundation. By considering these questions, family foundations may realize they’ve been looking for a succession formula while overlooking something of special (if previously unspoken) importance.

Engage all family members

Finding the right mix of older and younger generations provides ongoing opportunities for intergenerational learning and a board that can best steward the family’s shared philanthropic legacy. Finding that mix of family members should be managed with careful attention, as it may not occur organically. Disagreements will occur, but by engaging constructively, a better governance process will be discovered.

How much time and responsibility?

Be honest about both the requirements and limits on participation within the family foundation and find ways to articulate this within your family. Determine the expectations your family has for the next generation involvement and address any gaps between these expectations and individual perspectives.

Leverage your professional advisors

Many of the same challenges family foundations face are the same as those faced by family businesses. There are professionals who specialize in these issues, so seek out the advice of those with succession planning experience.

Curate the charitable mission

Cultivate a strong sense of family history and tradition, while welcoming the fresh perspectives and ideas of the younger generation.

Provide opportunities for next generation family to connect and learn from their peers at other private foundations, charities, businesses and professional advisors.

New ways to make grants

Part of curating the charitable mission of a family foundation can including creating a discretionary grants program to train new or future trustees in the work of the foundation and the grant making process.

A family should think broadly about the work their foundation does to identify ways that next generation family members can contribute to the philanthropic mission.

Which operational areas might the next generation contribute to?

• Granting
• Fundraising
• Investment management
• Governance
• Human resources
• Compliance
• Mission & Strategy

How can the next generation practice the skills they will need as leaders?

• Board presentations
• Consulting with professional advisors
• Tax planning and compliance responsibilities
• Measuring impact
• Fundraising initiatives
• Reporting processes
• Strategic planning
• Documenting the family history

Keep in Mind Best Practices

• Interest can be encouraged, but not forced. There needs to be a genuine motivation to participate.
• Offer different possibilities to reflect the range of ages, interests, and skills of family members, as well as the time and financial means they have available.
• The opportunities should be genuinely useful for both the foundation and the family member, respecting the strengths of each.
• Next generation family members need to participate in suggesting approaches they might find meaningful. Engage their thinking and input right from the start.