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Ultra High Net Worth Guide: How to Start a Charitable Foundation

How to Start a Charitable Foundation

9 Tips to Fulfill your Utlra-High Net Worth Retirement Goal of Family Legacy and Impact

As an ultra-high net worth household, you can devote your time and resources to many different retirement goals. If one of those goals involves charitable giving, one of the best strategies for effectively disbursing your wealth over many years is to start a foundation.

With the tens or hundreds of millions of dollars you’ve earned, a foundation allows you to use it in ways that best represent your values and beliefs.

As an ultra-high net worth household, starting your own foundation may be preferable to partnering with an existing nonprofit. It’s also preferable to starting your own nonprofit, because a foundation has more flexibility in the number of causes it can support, and you don’t have to raise money.

Some foundations do raise money, but fundraising invites its own set of challenges such as personnel and infrastructure. As an ultra-high net worth philanthropist, you don’t need to hassle with all those challenges if you’d prefer not to because you can fund the foundation yourself.

By starting your own foundation – even if it happens after your death – your estate retains control of governance, assets, and spending. You decide which causes you want to fund, and to what degree. Thus, a foundation enables you to use your wealth to support causes that align with your values.

And they’re flexible.

Foundation assets can include any of the following:

  • Cash
  • Equities – both public and private
  • Real estate
  • Tangible assets, such as art
  • Intangible assets, such as copyrights, royalties, and patents
  • Life insurance and annuities

If you want to set up a charitable foundation, here’s a good place to start.

Example of a Thriving Charitable Foundation

Before starting your own foundation, you would be wise to study a few existing ones that are thriving and successful.

One example is the MJ Murdock Charitable Trust, which supports causes such as education, spiritual growth, arts, and science research in the Pacific Northwest states.

The Murdock Trust was founded in 1975 by the estate of Jack Murdock, who started a company called Tektronix back in 1946. The Trust began with $91 million, and has given out over $975 million in funding to various nonprofits. Today, the Trust is worth $1.2 billion.

The Murdock Trust serves as a great example of how to smartly set up your foundation as an ultra-high net worth individual. What follows are 9 tips for starting a foundation, based in part on their model.

1. Direct Your Estate Plan to Start the Foundation

By far, this is the most critical step you must take. You may have a retirement goal of starting a foundation, but what happens to your goal if you die prematurely?

This is in fact what happened to Jack Murdock, who died in 1971. His foundation began in 1975. How could this happen? Because he specifically directed that three appointed trustees must start a charitable trust “to nurture and enrich the educational, cultural, social and spiritual lives of individuals, families and community.”

Not only did his estate plan require a foundation to be set up in his name, but he gave it a clear mission. This ensured that, even more than 40 years later, his foundation is still giving money to nonprofit causes that align with his values.

Murdock’s legacy will live longer than he did, and probably longer than all of us will.

The Murdock Trust began with $91 million, funded by his estate. As an ultra-high net worth person, he knew a foundation was the best way to ensure his wealth got used for purposes he would support. By putting this in his estate plan, he ensured his retirement goal of starting a foundation would come to pass.

2. Choose a State and a Name

Foundations must be incorporated, and each state has different legal requirements related to starting and running a charitable foundation. You’ll want to spend some time investigating which state would be the ideal home for your foundation.

You also need to figure out a name. The primary obstacle here is that the name you want might already be taken. You need to make sure your preferred name for your foundation is available, and secure the rights to it as soon as possible.

3. Work Through All the Legalities

You’ll have to create by-laws, conflict of interest policies, and several other legal documents. You personally don’t need to do all this. You can appoint or hire experts in this arena to do it for you.

Here’s more information about legal requirements when starting a foundation

4. Clarify the Mission and Values of Your Foundation

You must be clear about what you want your foundation to do. Don’t leave this up to interpretation by lawyers and long lost relatives. Know what you want to accomplish, and flesh out the details so whoever runs your foundation, even 50 or 100 years from now, will run it in a way that would please you.

5. Appoint Managers of the Assets

As you saw earlier, foundation assets span a wide variety. Not all of them require professional management. But the majority of your assets will likely require an investment management team if you want to steward them for healthy long term viability.

As you saw, the Murdock Trust began with $91 million, has given out $975 million, and is now worth $1.2 billion. They’re doing something right. They’ve already given away ten times Murdock’s initial funding of the Trust, and the foundation is worth even more than what they’ve given.

With smart investment planning, the Murdock Trust has avoided the need for fundraising. They’re growing their assets on their own, at a rate that exceeds their giving. In theory, they can go on forever.

You have three basic options for how to manage your foundation’s assets:

    • Manage assets internally
    • Manage assets externally
    • Manage assets using some combination of both

The Murdock Trust has a lifetime-appointed 3-member board that directs how their assets should be invested. But it farms out the task of managing these assets to outside firms – over 20 of them. So they leave the nuts and bolts of investment management to external companies.

You might prefer to do this internally. In that case, you’d need to hire investment management personnel from within your foundation. Your oversight of this process would look different depending on how you set this up.

6. Develop Selection Criteria for Asset Managers

This part is critical to get right.

Some foundations get started with as little as $250,000. Typically, to stay afloat, those would have to devote time and resources to ongoing fundraising.

But as an ultra-high net worth foundation, you’ll be in a position like the Murdock Trust, starting off with tens or hundreds of millions of dollars in existing assets. That means, whoever you hire to manage these assets better be using methods that align with your foundation’s goals and values.

You’re putting your foundation’s existence in their hands. This is not a job to hand off to your cousin (unless your cousin happens to be a professional wealth manager with decades of experience).

Murdock developed a whole list of criteria for selecting foundation asset managers.

For instance, they want to be able to visit the managers’ offices. Have in-person meetings. These are not internet-only investors operating on the dark web from Slovakia using cryptocurrency. The Murdock Trust wants mostly local firms they can see and talk to in person.

They also require any investment management firms they work with to have an established institutional client base, among other things. Nothing too surprising with these selection requirements. But the point is – they have them.

They worked out the details of this crucial part of their foundation to ensure their assets are being professionally managed.

According to Foundation Source, 66% of the 91,000 private foundations in the U.S. have under $1 million in assets. Thus, a lot of foundations face a higher risk of failing than you should be willing to tolerate.

Yes, you’ll have more money to start with. But if you want to give at the scale of the Murdock Trust and continue doing so for generations, you need to put great care into developing an enduring process for selecting your investment managers.

7. Establish Clear Performance Guidelines

Once hired, Murdock requires all their investment managers to follow their performance guidelines.

Again, as a foundation, you have control over your governance, assets, and spending. So, use it! Don’t let your investment managers hide from you. Require them to manage your assets according to your values and long term goals.

Put in writing how often you will evaluate their performance.

Be clear about any forms of investment, such as venture capital or real estate, you may not want the foundation taking part in, no matter what the reason.

And most importantly, work out a defined asset allocation that also aligns with your foundation’s long term objectives. The Murdock Trust, for instance, has a stated goal to exist perpetually. They don’t want to ever run out of money. Thus, their asset allocation is designed around long term growth and stability.

See more about Murdock’s investment objectives

8. Hire and Appoint Your Team

With your foundation legally established and named, and with your investment manager selection criteria and performance guidelines created, you’re ready to launch.

Hire the appropriate people to run the foundation, accept grant requests, evaluate your investment performance, and all the other tasks necessary to keeping your foundation healthy and generous.

Probably your biggest administrative task will be accepting and processing grant requests. You will need to develop a system for this and hire people to manage it.

9. Fund It and Start Giving

Again, as an ultra-high net worth foundation, you’re not looking to fundraise. You’re giving a large share of your own wealth to this so you can achieve your retirement goal of producing a legacy that lasts far beyond your lifetime. And you want that impact to start immediately. Not twenty years from now.

Whatever you want to see improved in the world, you can direct your foundation to pursue those goals. That could be political, educational, social, environmental, religious, artistic, scientific, technological, economic, global, agricultural – or many of these all at once.

You may decide to divide your foundation into separate branches to focus on specific missions. As long as you’re there to supervise it, you’ll derive great joy in seeing your wealth used to fund the causes and values that you care most about.

Securing Your Retirement Goals Begins Now

You may have a dream of starting a charitable donation, but that doesn’t mean it will happen.

Even as an ultra-high net worth household, your retirement goals and plans can be derailed by unforeseen events.

Tax realities might change. Surprise medical expenses.

Securing your retirement dreams requires taking action today.

If you want to ensure your future retirement goals such as starting a charitable foundation become reality, schedule a Wealth Management Analysis meeting today with Pillar.

We have developed a process that builds an optimized investment plan around the achievement of your goals. You will know you’re on track to achieve your goals, with near absolute certainty. And you will know it continually, every quarter.

See how our system assures you of the retirement of your dreams. Schedule a Wealth Management Analysis meeting

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