Case study: creating a foundation

Nation's Business, April, 1997 by Roy O. Williams, Marty Carter

Most family members and longtime employees at Collins Manufacturing Co. agree that Lucas Collins, 32, is a dead ringer for his grandfather, Andy, in looks, wit, and charm. Although they are alike in so many ways, there is one major difference: Lucas wants to start an Andrew Collins Foundation to build a lasting tribute to his grandfather and to benefit the community Andy, however, can't understand why Lucas wants to "just give money away," money that Andy and Jared, Lucas' father, worked so hard to make.

Lucas feels very fortunate that he has been able to do things in his life that his grandfather and father could not afford to do. He attended the best schools, has owned the best cars, and learned early how to live with wealth.

Andy, on the other hand, survived the Depression and many other traumatic events over the years. Jared spent his youth and middle age working long hours in the business. Through their hard work, sacrifice and devotion to the family, they were able to develop a lucrative business, one that now has more than $100 million in annual revenues.

"Our family is now in a position to give back to the community that helped us grow,' Lucas says. "But how can I convince my grandfather that a foundation will have a lasting benefit for our town and our family?"

What's more, he wonders, how do you start a foundation? How much money is required? And who would manage it?

Response 1

Seek Involvement In The Mission

Lucas should enlist Andy's and Jared's help to determine the mission of the foundation, which then can be structured to accomplish its goals.

Will it be an operating foundation (one that can engage in a broad range of gift giving), a nonoperating foundation (one that can make grants only to qualified charities), or a donor-advised fund at an existing community foundation?

Will the family donate funds to the foundation each year, or will the foundation be endowed? If the latter, will the endowment be over time or all at once?

Also, will Lucas have time to help develop projects for the foundation? Or will the foundation primarily provide grants to organizations that have been granted tax-free status by the Internal Revenue Service? Who will do the due diligence for the grants requested? Lucas needs a lawyer with the right experience and expertise in forming foundations.

Our experience suggests that once a mission benefiting the community is agreed upon, Andy will be proud to have his name on a lofty and worthwhile foundation.

Two publications could help the Collinses:

* Family Foundations at Work, by Kelin E. Gersick, John A. Davis and Kevin Seymour; available free from Lansberg, Gersick and Associates, 100 Whitney Ave., New Haven, Conn. 06510; (203) 497-8855.

* Early Childhood Training, Family Foundations, and Philanthropic Activity, by Roy O. Williams and Newman S. Peery Jr.; this research paper on educating children about philanthropy is available for $10 from The Williams Group, 2351 W. March Lane, Stockton, Calif.; (209) 477-0256.

Roy O. williams, owner and CEO of The Williams Group, a Stockton, Calif., firm that specializes in the transfer of wealth.

Response 2

Put An Emphasis On Communication

Lucas' timing is just right. In August, Congress voted to restore full market-value tax deductibility for gifts of stock to private foundations, at least through May 31. Thus, Lucas can begin to convince his grandfather by pointing out both the estate-planning opportunities and the investment in common values that would result from a decision to proceed with a foundation.

Lucas should first attempt to bring the family together to talk about the benefits to family and community that derive from this kind of collective philanthropy. A facilitator who is expert in family dynamics and knowledgeable about family foundations could help Lucas make a family meeting a rewarding experience.

In that meeting, Lucas would have the opportunity to help his father and grandfather see that his desire to make a contribution to his community is as much a part of his inheritance as the family business is.

Lucas should know that he can get help not only from his attorney but also from the Council on Foundations, which provides "how-to" materials and sponsors an annual conference where Lucas could learn from fellow family foundation trustees. It also offers a 108-page book. First Steps in Starting a Foundation for $45. Contact the council at 1828 L Street, N.W., Washington, D.C. 20036; (202) 466-6512. Or visit the council's World Wide Web site at www.cof.org.

There are more than 35,000 foundations' in the U.S. Most have assets of $1 million or less and have learned that "small can be effective." Many of these family foundations are managed by family members themselves. Other families have hired a parttime or full-time staff as assets have grown.

Marty Carter, a family-business consultant and president of the Carter Center for Family Consultation in St. Paul, Minn.

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This series presents actual family-business dilemmas, commented on by members of the Family Firm Institute and edited by Georgann Crosby, a consulting partner in the Family-Business Roundtable, a consulting organization in Phoenix. Identities are changed to protect family privacy. The author's opinions do not necessarily reflect the views of the institute. Copyright [C] by the Family Firm Institute, Brookline, Mass.