The goals of a family foundation may be ensured by appointing family members to head up the foundation. Children or siblings of the deceased are usually appointed to run these foundations, with the hopes that they know better than anyone unrelated to the family how to achieve and maintain the values and goals of the foundation.
This “keep-it-in-the-family” approach may not be the best in every family.
The New York Times, in “When Family Members Run Foundations, Scrutiny Never Ends,” identifies some of the potential pitfalls awaiting unwary family members when running a family foundation.
A few of the potential problems detailed in the article are:
- Compensation – Family members who are paid to work for the foundation must be paid a salary that would be ordinary and reasonable for non-family members working in the same positions in similar organizations.
- Travel Expenses – Family members who travel on foundation business can be compensated for their expenses. However, they cannot bring other people with them and charge the foundation for their expenses too. For example, the children cannot be taken along and their expenses may not be charged to the foundation.
- Self-Dealing – One of the biggest ways for family members to get in trouble is when the foundation deals with family members. For example, if the foundation rents office space in a family-owned building, the rent paid must not be excessive.
If you are considering creating a family foundation, speak with an estate planning attorney about how to set everything up properly so that your family does not run afoul of the IRS.
Reference: New York Times (September 11, 2015) “When Family Members Run Foundations, Scrutiny Never Ends”