The Stewardship Principles for Family Foundations encourage foundations to provide orientation and training for new board members and professional development for existing board members and staff. They also encourage planning for leadership continuity through activities that identify, educate and prepare the next generation of family members for future board service. Finally, they suggest that the foundation inform the broader family of the foundation's work and provide avenues for young family members to learn about and participate in the work of the foundation. The Council’s Family Foundation Conference provides an excellent opportunity to accomplish each of these goals through the substantive content, access to experts and peer networking opportunities. Foundations with multiple board members attending the conference may decide to schedule a board meeting to coincide with the conference to minimize the administrative expenses and time required to plan a board meeting at a different time.
Because of the legal issues involved, however, foundations should carefully consider whether foundation funds should be used to cover certain expenses. This is especially true where the foundation is considering paying travel and related expenses for children and other family members who are not currently board members or staff. For purposes of the self-dealing rules, most family members are considered “disqualified persons.” Accordingly, the foundation cannot pay the expenses of a disqualified person unless those expenses are reasonable and the family member is performing official duties or services that are necessary for the foundation’s operation.
The Council urges caution about using foundation funds to cover expenses of family members, especially children or grandchildren, on the ground that attendance helps them learn their future duties. In the only published guidance on this issue (PLR 9546020), the IRS ruled that reimbursement of training expenses for future trustees was not self-dealing. In the situation the IRS considered, the number of potential future trustees was small, the individuals in question had reached the minimum age required for election to the board, a significant proportion of those trained were likely to become trustees soon, the training program would be a formal, structured affair, and active participation in it would be a requirement for election to the board. Foundations should be hesitant to cover expenses for “trustees-in-training” without first considering similar factors.
Beyond the legal considerations, foundations would be wise to consider whether paying travel expenses for family members is consistent with the foundation’s values and ethics. In promoting active fiscal oversight, the stewardship principles encourage boards to ensure that expenses are reasonable and in proportion to amounts spent on grants and technical assistance. Board members should also be aware that these decisions about paying travel expenses for their own family members may involve conflicts of interest. Finally, it may be prudent to consider the public perception of the foundation’s actions.
Ultimately, the decisions about whether and to what extent a foundation takes advantage of the conference for professional development and training of board members, staff and other family members should be made after careful consideration of your situation. Those with questions should contact their legal counsel. Often, the safest approach is to have family members pay their expenses personally unless their participation is clearly within legal and policy considerations.
For additional guidance from the Council, please contact our legal staff at 703/879-0713.