ESG Investing

Family Foundation vs Family Office: Which Is Best?


Family foundations and family offices are not the same entity—but it is an easy mistake to make. Both are important tools for wealthy families to manage their assets. However, they are quite different in purpose and structure. Understanding those distinctions is essential for families to determine which approach is best for them.

Family Foundation vs Family Office: What’s the Difference?

Family offices typically manage the financial interests and personal concerns of a family or multiple families. A single family office structure supports highly customized services for one individual or family; generally, this single family office structure is most appropriate for families with more than $100 million in assets. Multifamily offices serve more than one family, typically with assets of more than $20 million. Although generally less bespoke, they are also less costly. Family offices are staffed by professionals, who may fluctuate in number depending on the family’s wealth and complexity of their needs.

Family foundations, on the other hand, are entities created to carry out a family’s philanthropic giving and build a charitable legacy. Financed and run by a wealthy donor and that donor’s family, the foundation invests its assets to generate continued funding to support the foundation’s mission.

Both family offices and family foundations provide opportunities to take an impact approach.

When to Choose a Family Foundation

Choosing whether to approach a family office or family foundation structure starts with a family’s goals. If the objective is to support charitable and ESG causes, a foundation can help.

There are other reasons why a family foundation might be the right fit, too. Tax benefits top the list. For example, a family can typically avoid capital gains taxes while growing investments in a tax-advantaged structure. Plus, creating and participating in a foundation targeting specific causes can strengthen bonds among family members and help build a sense of social responsibility in younger generations.

On the other hand, foundations must be careful to consider tax regulations governing private foundations, such as meeting the fiduciary standard of care. Violations can bring hefty penalties.

When to Choose a Family Office

Families can still make philanthropic donations and advance impact investing through their family offices, and 73% of family offices say they are involved in charitable giving. Those decisions may also be less cumbersome for some, because foundations often have trustees who must approve applications from charities seeking funding and generally consider only those that fit the foundation’s stated purpose and guidelines. As a result, a family office has more flexibility to direct funding to other areas.

The greatest appeal of the family office, however, is having an objective group of professionals who can handle a family’s financial and personal affairs all in one place. By combining their assets and holdings, families get economy of scale, with such benefits as lower fees.

Including Impact in the Mix

For impact investors, both family offices and family foundations provide opportunities to take an impact approach. Family office Blue Haven Initiative, started in 2012 by Liesel Pritzker Simmons and Ian Simmons, makes solely impact investments. Similarly, the Russell Family Foundation has transformed its portfolio to become 90% mission-aligned, up from just 7% in 2014. Particularly noteworthy is Omidyar Network: started by eBay founder Pierre Omidyar in 2004 as a private grantmaking foundation, it also includes a limited liability company that invests in mission-related enterprises, offering a hybrid approach and model.

Ultimately, the decision of whether to opt for a family office or family foundation depends on a specific family’s goals. Either way, investors have opportunities to incorporate impact in an investment strategy.

Any company, security, fund or other investment identified herein is provided solely for illustrative purposes and should not be construed as a recommendation or solicitation for the purchase or sale of any such investment. By clicking on a weblink included in the above article, you may access a website operated by a third-party. Please review the website’s terms of use and privacy policy upon entering the site. We are not responsible for any content, links, products or services available on third-party websites.

Stay in the know on the latest in ESG Investing.

Explore more of our latest articles on ESG Investing or subscribe today to receive personalized articles in your inbox every month.

Subscribe View all ESG Investing Articles