As charitable giving becomes more structured and more deeply embedded in family identity, many families are asking whether a private family foundation is the right next step. Foundations can offer long-term impact, tax efficiency and meaningful opportunities to engage the next generation.

Charitable foundations collectively hold hundreds of billions of dollars in assets nationwide, underscoring their importance as long-term vehicles for philanthropy and multi-generational legacy building[i].

But they also come with responsibilities, costs and complexity that require careful evaluation.

The question is not about whether foundations are worthwhile enterprises. They almost always are. It’s about understanding when foundations make sense and how families can approach them thoughtfully.

Is a Family Foundation the Right Fit?

The first consideration is financial readiness.

There is no legal minimum to establish a private foundation, but the general view is that foundations are most appropriate when a family intends to commit at least $1-2 million in assets over time.

This threshold reflects both the ongoing administrative requirements and the operating costs, which often range from 1.5% to 5% of assets annually after accounting for legal, accounting, compliance and investment oversight[ii]. Families drawn to foundations typically want more structure, more control and a longer-term philanthropic runway than simpler giving vehicles provide.

The ‘control’ piece is particularly salient for families, and it’s one of the distinguishing features of a private foundation. A 501(c)(3) entity is generally funded and governed by a single family, acting as a private foundation that lets donors decide how grants are made, which causes receive support and how the organization is run, while still providing charitable deductions consistent with private-foundation rules. For families who prioritize values-based decision-making and stability over time, this level of direction and customization can be compelling.

Then there’s timing. Establishing a foundation often aligns with major inflection points like a business sale, IPO, inheritance or other liquidity event that significantly increases taxable income and creates an opportunity to formalize a long-term giving strategy. Families may also choose to create a foundation when their charitable giving begins to feel scattered or reactive. A foundation can transform fragmented giving into a unified mission.

What It Takes to Run a Foundation

Foundations offer flexibility, but they also come with ongoing responsibilities that must be understood at the outset.

One of the most important is the regulatory requirement that most private foundations distribute at least 5% of their assets each year in qualifying charitable distributions, as required under IRC Section 4942 (IRS requirement)[iii]. Failure to meet this annual payout requirement can lead to significant excise taxes. Foundations are also responsible for annual Form 990-PF filings, prudent investment oversight and compliance with rules governing self-dealing. Finally, foundations often pay a 1.39% excise tax on net investment income, which becomes part of the planning and distribution strategy each year.

These responsibilities do not need to deter families, but they do emphasize the need for a level of commitment that not every family desires.

Despite these obligations, foundations offer unique advantages. They can anchor a family’s long-term philanthropic identity, provide governance experience for children and grandchildren and create structured roles for younger generations, from grant research to attending site visits to participating in board meetings. This experiential learning is one of the reasons many families choose to establish foundations. It can teach future generations stewardship, purpose and responsibility in ways financial education alone cannot.

Private Foundations vs. Alternatives

It is important to note that foundations are not the only path for structured charitable giving.

Donor-advised funds (DAFs) have grown rapidly because they offer simplicity, flexibility and far lower administrative requirements. Minimums are typically accessible, often around $5,000 to $25,000[iv]. DAFs also tend to distribute assets at much higher rates, frequently above 20% annually, compared to the 5% minimum required of private foundations.

Charitable trusts represent another option, especially for families who want to integrate philanthropic goals with income or estate-planning considerations. Hybrid approaches are also common, with many families establishing a donor-advised fund to launch collaborative giving habits and later transitioning into a foundation as their mission and capacity expand.

Bringing It All Together

A family foundation is a powerful vehicle for philanthropy. It is capable of strengthening family identity, amplifying charitable impact and carrying values across multiple generations.

But it is also a commitment that comes with costs.

When a family thinks about starting a foundation, the decision should rest on a clear sense of why they want it, a willingness to handle the ongoing work involved and confidence that the structure fits their giving goals. With careful planning and support from experienced advisors, a foundation often grows into more than a legal vehicle for grants, becoming a shared effort that brings family members together around their philanthropy.

If you are considering whether a foundation is the right step for your family philanthropy, speak with your financial advisor. Together, you can assess your goals, explore alternatives and design a giving strategy that supports both your charitable ambitions and your family’s long-term vision.

 

IMPORTANT DISCLOSURES:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.

This presentation includes forward-looking statements and opinions, including descriptions of anticipated market changes and expectations of future activity. Forward-looking statements and opinions are inherently uncertain, and actual events or results may differ materially from those reflected in the forward-looking statements. In addition, all expressions of opinion are subject to change without notice in reaction to shifting market conditions. Therefore, undue reliance should not be placed on such forward-looking statements and opinions.

The tax and estate planning information offered by Newport Capital Group is general in nature.  It is provided for informational purposes only and should not be construed as legal or tax advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation.

Past performance is no guarantee of future performance.

 

Sources:

[i] Source: “2024 DAF Report,” National Philanthropic Trust.

[ii] Source: “Is a Private Foundation Right for You?” Charles Schwab, October 15, 2025.

[iii] Source: IRS.gov

[iv] Source: “Donor Advised Funds vs. Private Foundations,” National Philanthropic Trust.