Succession Planning for Private Foundations

Private foundations are often established with the noble intent of creating a lasting charitable legacy, but many fail due to administrative burdens, regulatory complexities, and a lack of long-term engagement from successors. Without proper planning, the intent and vision of the passionate founder, with a deep connection to a cause, can become murky and diluted.

The Importance of a Clear Succession Plan

It is crucial to provide a clear succession plan to guard against the risk of losing direction and to ensure effective management and compliance. To ensure continuity and operational stability, having a well-defined mission, vision, executable strategy, and key people can help prevent the foundation from becoming unmanageable and at risk of dissolution.

Building a Framework for Governance

Foundations should always have a strong framework for effective decision-making, which includes appointing a board of trustees with a clear and structured compensation plan, oversight of leadership appointments, and including term limits. Cultivating leadership can come from internal and external resources. While family members can serve on private family foundations, caution is needed as the Internal Revenue Service will closely scrutinize compensation arrangements to guard against self-dealing. Having independent trustees or professional advisors serve on private foundations helps to minimize these concerns. They may offer fresh perspectives and innovative ideas, help maintain regulatory compliance, and identify areas of weakness that nonprofessionals are unable to recognize.

Often, in selecting an initial board, families choose family members—a meaningful way to foster legacy and continuity. However, the pitfalls include time management due to their busy lives, lack of engagement, lack of proper knowledge, and the informality that most families engage in, which can cause improper record-keeping and clouded decision-making.

Professional trustees can be helpful in many ways, but where we see them excel the most is in assisting with the grant-making process, providing guidance in governance discussions as an unbiased resource, offering the knowledge and acumen to maintain tax-exempt status, handling asset transfers, and becoming mentors to the families that choose to place their kids or grandchildren into the leadership roles within the private foundation. They can prevent costly mistakes and penalties.

Planning for the Unexpected

Succession planning is not just about long-term leadership—it is also about handling sudden changes that may arise from illness, resignation, or unforeseen circumstances. Foundations that delay succession planning risk instability, leadership gaps, and mission drift. Proactive planning ensures a seamless transition of leadership, upholds the foundation’s purpose, and fosters long-term sustainability. Having the right team can smooth transitions effortlessly without disruptions or discord.

The Value of Professional Support

Identifying areas where a private foundation may have weaknesses—and bringing in professionals who can step in as needed—is key to long-term success. These experienced advisors serve as invaluable resources, helping to guide the board and family, ensure compliance, and strengthen the foundation’s ability to carry out its mission.

Preferred Legacy Trust stands ready to support families with succession planning, governance, and strategic insight to preserve and protect their philanthropic vision. Contact them or your CRI advisor today to begin building a thoughtful, customized plan that keeps your foundation’s mission on track, honors your values, and allows your charitable impact to thrive for generations to come.