3 Practical Ways to Manage Risk in Your Private Foundation

Running a private foundation is one of the most rewarding things a family can do with its resources. It also comes with real responsibility. The IRS holds foundations to a specific set of rules, and staying on the right side of them takes a little more than good intentions. Here are three things worth understanding if you have a foundation or are thinking about starting one.

Know the Basics

Foundations exist to serve a charitable purpose, not to sit on assets indefinitely, so the IRS requires them to give away a portion of what they hold each year and to make certain financial details public. Foundations also can't get involved in lobbying, campaigning, or voter registration drives, though general advocacy is still allowed. One area that catches people off guard is how closely the IRS watches transactions between a foundation and the people closely connected to it, like founders or board members. Even a transaction that seems to benefit the foundation can run into trouble if it isn't structured the right way. Grants made directly to people also have their own set of rules. Some, like emergency relief after a disaster or an award recognizing someone's past work, don't need advance approval. Others, like scholarships or a grant tied to a specific future project, generally do.

Watch for Fraud

Unfortunately, scams targeting charitable givers tend to spike right after disasters and emergencies, exactly when people want their help to move fast. A few habits go a long way here: keeping a close eye on where grant dollars actually end up, using tools that flag unusual account activity, and checking in with a watchdog group like Charity Navigator or CharityWatch before sending money to an organization you don't already know well.

Build in Support You Trust

You don't have to track every rule yourself. Some foundation owners handle the day-to-day themselves, some lean on their accountant and attorney, and others bring in dedicated help to manage the details. None of these is the "right" answer for everyone. What matters is having people around you who know the rules well enough that you can spend your energy on the part that matters most: deciding where your generosity goes.

If you have a foundation already, it's worth asking whether the support around it matches how it's actually being used today. If you're still considering one, this is exactly the kind of thing worth talking through before you get started. I'm happy to have that conversation whenever it's useful.