By Scott Keffer

How would it feel to have played a major role in defeating Hitler during World War II?

“How could one single individual have that much influence?” you might ask. The answer is private philanthropy.

Alfred Lee Loomis was a successful entrepreneur in the mid-1930s who profited greatly from the Wall Street Crash of 1929. At the age of 45, Loomis gave a “gift” that would later change the course of the war. His private philanthropy created a leading-edge physics lab that attracted the likes of Albert Einstein and others.

Loomis’ foundation collaborated with some of the most esteemed scientists in America and England to develop what many believe to be the key technological advancement that contributed to winning the war: radar.

Loomis was not alone. The preferred vehicle for private philanthropy has always been the family foundation — home to more than $500 billion. A recent Bank of America study revealed that almost 98 percent of high net worth families donated to charity in 2005 — many through such foundations. In 2006, fifteen individuals pledged gifts of $100 million, more than half to private family foundations. And Warren Buffet’s recent $31 billion gift to the Gates Foundation is just one of many donations that have made him the most generous philanthropist in history.

One of the reasons private family foundations are increasingly popular is because they are so hands-on. They allow families to maximize control over the use of their contributions; perpetuate charitable intent long after the founder has passed away; teach family members good stewardship and the value of money; allow family members to be paid to manage family philanthropy; create  positive community influence; and design vehicles for strategic giving. And while the tax benefits of private foundations are not as generous as they are for donations to public charities, they are still quite attractive.

Growing up in the Midwest, we loved to pass the time by skipping rocks across the local lake. When the rocks hit the water, ripples from one “skip” merged into the ripples of the next. In a very real sense, the skipping rocks are akin to generations of families, while the enduring influences would be the ripples fanning out across the water. 

For example, the Swedish entrepreneur Alfred Nobel made millions by inventing and manufacturing dynamite but never thought much about his legacy. That is, until he read his own obituary. In 1888, while reading his brother’s obituary in a French newspaper, he realized the paper had mistakenly confused him with his deceased brother.

Shocked at the paper’s characterization of his life, he set out to “rewrite” his obituary, seeking a legacy as a champion of human achievement. Eight years later when his obituary truly was written, his wealth plan left $9 million to fund the Nobel Foundation. On the fifth anniversary of Alfred Nobel’s death, the first set of Nobel Prizes was awarded. Alfred Nobel had successfully rewritten his obituary, and today we still feel his influence. 

As unprecedented levels of wealth will be transferred during the next decade, we can only hope other wealthy families will follow the lead of pioneers like Loomis and Nobel. Their example is critical because, as real estate and travel magnate Curtis L. Carlson recently pointed out, “There’s nothing people like me worry about more (than how we) keep our money from destroying our kids.”

Commodore Cornelius Vanderbilt’s grandson, William, an heir to $60 million in 1885, declared that “inherited wealth … is as certain a death to ambition as cocaine is to morality.” Today, the Vanderbilt’s great fortune isn’t nearly what it once was.

Private philanthropy, on the other hand, can unify a family around shared ideals and values, helping the members maintain a grounded identity apart from their inherited money. Also, the skills required to thoughtfully give to a sound charity are similar to the skills required to successfully grow and preserve wealth — both being founded in restraint and responsibility.

In 1866, Levi Strauss, a German-Jewish immigrant, built his first store, which would become the foundation of five generations of private philanthropy. These would include numerous family foundations and the company-controlled Levi Strauss Foundation. Fourth-generation heir Walter Haas, Jr., serving on the board of his parents’ private foundation, reflected, “It’s in the way we were brought up … I saw what my parents were doing. I guess we tried to emulate them.” Haas later went on to start his own foundation. Private foundations can link us back to past generations as well as to the values, innovation and work ethic that helped create the original wealth.

It’s easy to see that the benefits of private foundations reach far beyond tax strategies. They make a sound impact on the families who run them, the broader community and sometimes the whole world. So, toss a rock, create some lasting good will and take comfort in the ripples that will spread out for generations to come.

 

Your Family Foundation

Begin by talking to a charitable estate planner or a tax/estate planning attorney about adding a family foundation to your wealth plan.

Private foundations once required a minimum of $5 million but today can be established with a million dollars or even less. The Council on Foundations is an excellent resource, publishing a variety of books and articles on the subject, including “A Founder’s Guide to the Family Foundation.” The Association of Small Foundations is another organization that assists people who run their own foundations with 2,400 member foundations whose assets range from $100,000 to $250 million.

Also, one is not required to create a private foundation while living, as heirs can do so through a will or living trust. Upon one’s death, all contributions to the family’s foundation are fully deductible for estate tax purposes.