"I want to leave my children enough [money] to do anything they want," Warren Buffett says. "But not enough to do nothing." And so he, in partnership with Bill Gates, has in recent years made some of the largest philanthropic contributions ever. As this wealthy duo's contributions have made history, those from people of ordinary wealth have been increasing.

In the last 10 years, assets in domestic private foundations have grown from $250 billion to more than $600 billion, according to the Foundation Center. The organization estimates that there are more than 78,000 private foundations in the United States, about 88% of which are family foundations. As recently as last year, nearly two-thirds of these were classified as active.

This increase parallels a rise in high net worth individuals and their assets, as reported in the Capgemini-Merrill Lynch 2008 World Wealth Report. While their wealth has increased, the report indicates, these individuals have been demanding more customized service from advisory firms.

In a related finding, a recent study by Schwab Institutional showed that, during the first half of this year, about 85% of independent advisors reported that they'd signed new clients who had left full-service brokerage firms. A key reason for these defections was that these clients wanted more personalized service.

Up Close and Personal

Few services are more personalized or customized than advising on family foundations. So the studies' findings, coupled with data reflecting a burgeoning interest in philanthropy among wealthy individuals, suggest a bountiful growth area for planners-especially those who may not yet be managing philanthropic wealth.

Advising on family foundations, setting them up and monitoring them involves knowing not just the details of a client's financial life, but also their various social, political, cultural and humanistic values and predilections.

This increases the intimacy of the client relationship and extends it from the patriarch or matriarch to the entire family. "Giving back to the community is an important priority for all our client families in order for them to solidify the family name in the community, to create a family bond and to instill values in the next generation," says Rhona Vogel, CPA, founder and president of Vogel Consulting in Brookfield, Wisc.

Conducive to Care

Not only are family foundations a highly effective way for clients to give, they also enable judicious giving in a structure conducive to long-term, deliberative planning. They provide a multitiered flexibility for donors that is unavailable through other vehicles such as charitable trusts or donor advised funds.

Family foundations also have relatively advantageous tax rates-only a small excise tax of 1% to 2% of the net investment income of a private foundation, says Charlie Haines, CFP, of Charles D. Haines in Birmingham, Ala. Thus, he says, foundations "liberate assets for philanthropy."

But such benefits for clients don't come easily, nor do the potential benefits for your firm. Serving family foundations means ramping up for a highly specialized, highly regulated area that may be foreign terrain to planners who have focused on how much money clients earn on investments rather than helping them disburse it toward charitable goals.

In addition to mechanical and structural aspects-including hiring the right consultants and advising clients on the choice of board members-there is also a litany of required regulatory filings and a rat's nest of tax rules that may seem arcane to planners whose tax orientation centers on interest income and loss deductions.

Though many of these rules are aimed at preventing tax evasion through self-dealing, it's nonetheless easy to technically run afoul of them inadvertently, setting off the IRS radar. "For example," warns Haines, "a client can't satisfy a personal pledge made to their favorite charity with a pledge payment from their family foundation. This is strictly verboten." Thus, planners should include in their network of family-foundation consultants a tax attorney with solid experience in the field.

Labor Intensive

Yet even with the right network of such experts, family foundations tend to be highly labor-intensive for planners who must act as the team's quarterback while handling non-specialty mechanics, such as counseling families on the myriad financial decisions involved.

"Families need to engage in a number of family meetings to decide on their mission, their philanthropic priorities and the details of their grant-making process long before they start picking board members," Haines explains. The main purpose of the meetings is to determine the focus of the foundation, he says, and this can be quite time consuming.