Boston GlobeGIVING
Author: By Jerry Ackerman, Globe Correspondent
Date: 11/24/2002
Page: U8
Section: Living
The Harman Cain Family Foundation came about because of what Barbara Harman calls "a blip" - a sudden profit from stocks they had held and whose value spiked in 1996.
The windfall presented challenges. "We are college professors with no perspective on the world of blips," she said. Among other considerations, there was the prospect of a steep capital gains tax.
After doing "some nice things for ourselves," they wanted to give the balance, more than $400,000, to charity. But because it came in December, just before the tax deadline for giving, "we didn't know where we would give this much money in a short period of time," Harman said.
The answer was a foundation, established under Internal Revenue Service rules, that provided a tax shelter while easing the need to act under pressure. Now they could make their gifts at any time, as long as those gifts equaled 5 percent of their assets each year.
Their decision put Harman and Cain in good company. According to the National Center for Family Philanthropy, there are more than 40,000 private foundations in the United States for giving money, and about two-thirds of these are family managed.
Of the total, about 75 percent have under $1 million in assets, and 90 percent have below $10 million. Together they distribute about $5 billion a year, the NCFP estimates.
Ellen Remmer, director of family practice at The Philanthropic Initiative, a Boston-based organization, estimates a surge of huge investment returns triggered the formation of about 1,000 new family foundations a year through much of the 1990s.
Meanwhile, inheritances left by the passing of a generation many consider the most prosperous in a century is adding to this cash influx.
Paul Schervish, director of the Social Welfare Research Institute at Boston College, has estimated between $20 trillion and $50 trillion will be available for philanthropy by the year 2050.
Beyond their tax advantages, foundations have additional appeal by providing a forum in which families can discuss charitable and moral values. Many families, newly rich, "are basically trying to make meaning of their wealth for themselves," Remmer said. Others, she said, "are concerned about the impact of their wealth on their children. They know that their children are living a very different kind of life than they did, and they are worried what this means to the children's lives. They want to send a message."
Harman and Cain fall in the second category. "We wanted our kids to see that these were choices that we were making. The foundation would give us many different occasions to talk about philanthropy with them," Harman said.
Next weekend, as they have every Thanksgiving since setting up their foundation, Harman and Cain will sit down in their suburban home with their two daughters and decide where to direct about $20,000 in investment returns their nest egg is expected to yield in 2002.
Last year, they gave heavily to the New York Times 9/11 Neediest Fund. This year, along with regular family contributions to several schools and health organizations, they again will ask the girls for additional input.
The candidates include a Boston youth ballet corps their older daughter chose several years ago and where she now also dances, and the EcoTarium in Worcester, her sister's favorite in the past.
Some family foundations are so large a staff is needed to review requests from charities and keep track of the money. Most, however, operate informally. Some families meet in the summer or around holidays to discuss who and what will receive help. Others communicate mostly by phone or e-mail.
Organizing a family foundation can be done in several ways. An IRS-approved family foundation is the most common, says Siobhan O'Riordan of Giving New England, which is actively promoting the creation of family funds. Compared with others, this is a structure a family can truly call its own, O'Riordan said. "This can be something that you leave to your family, that becomes a family tradition - a permanent way for a family to connect to philanthropy."
A donor-advised fund, in which an investment manager or a community foundation assumes administrative details, is an alternative.
Richard Burnes, a Boston-area venture capitalist who seven years ago set up a multimillion-dollar family fund with his adult children, said a big foundation rolls up thousands of dollars in legal and accounting fees each year. "This is substantially cheaper."
Management by a community foundation can be attractive if the foundation can also evaluate the charities requesting money. Most investment managers don't have this service. Burnes said he and his family chose the Boston Foundation, one of 13 community foundations in Massachusetts, because of its staff. "They have warned me away from things that we have considered," he said.
Whatever format they choose, families with foundations say some of their greatest value is the way they help promote discussion among family members about giving and about shared goals. The Burnes family found common interest in conservation. Although the family's Butler's Hole Fund - named after a stretch of ocean off Cape Cod where they sail - has no stated goal, family members consult often as they individually support the Trust for Public Lands, the Trustees of Reservations, and the Maine Coast Heritage Trust.
Burnes, his children, and their spouses also sit on the boards of conservation organizations. "It used to be that foundations did nothing but write checks and took no responsibility. This is like venture capital, trying to make things work better," Burnes said.
Remmer agreed that having a foundation provides weight that can help influence how donations are used. Along with her work, she helps her own family manage a foundation that makes grants to leadership programs for girls. "We try to inspire them," she said. "Your money will go further if you can be thoughtful and focused."
Harman and Cain draw satisfaction by giving to smaller organizations, for which a $1,000 contribution can mean a great deal. They select many of their charities from the Catalogue for Philanthropy, published by the Ellis L. Phillips Foundation of Boston.
At the same time, Harman said, she and her husband want to set an example for their daughters. "When we are no longer on this earth, and maybe sooner than that, we will pass this on to our girls," she said. "Maybe when they are my age, they'll want to be doing this, too."