Let's imagine a typical foundation started by successful businesspeople in order to make charitable contributions each year to a small constellation of nonprofits in their community.

Fast-forward a couple of decades and the founders have achieved more financial success than they ever expected. While undertaking their estate planning, they have ascertained that even after they take care of their children and grandchildren, there will be a substantial amount left from their holdings to donate to the foundation. In fact, the founders anticipate that upon their death the foundation's assets will increase from $3 million (current value) to approximately $40 million. The founders realize that this eventual windfall merits advanced planning to best meet the opportunities that come with such a large increase.

If, like the founders in this hypothetical example, you should find yourself confronting an almost-overnight jump in your foundation's assets, what should you do? How should you plan for such an event and carry your foundation into the future?

One of the immediate outcomes of explosive growth is a dramatic increase in a foundation's 5 percent minimum distribution requirement (MDR). The MDR is based on the average value of foundation assets in the previous year, so as assets grow, foundations are required to increase their charitable activities accordingly. Although the increased MDR won't impact the foundation immediately, a major infusion of capital provides ample reason for the foundation to develop a plan for programmatic growth alongside its financial growth.

Even though foundations are given some time to ramp up their distributions as a result of sudden growth, they eventually need to bring their grantmaking strategy in line with their new assets. These are questions to guide the development of such a strategy:

  • What do we want to accomplish as a foundation?
  • What are our unique qualifications for making a difference?
  • Should we expand our scope?
  • Where can we achieve the greatest impact?
  • Can we fund things that fall outside of our mission?

Read the full article about planning foundation growth by Elizabeth Wong at PhilanTopic.