A private foundation can pay family members reasonable compensation for reasonable and necessary services to the foundation as an exception to the private foundation self-dealing rules.
Reasonable Compensation
The IRS defines reasonable compensation as the amount typically paid for similar services in similar circumstances. There’s no exact formula, but consider the foundation’s size, grants, methods, services provided, time spent, qualifications, and the family member’s compensation in other roles.
For benchmarking data, see Exponent Philanthropy’s Foundation Operations and Management Report.
Reasonable and Necessary Services
Services must be essential to the foundation’s charitable goals, with the family member qualified to perform them, and the extent of services reasonable for the foundation’s needs.
Advantages and Drawbacks
Hiring family members can bring familiarity with family values and foundation goals, strong relationships with the board and grantees, and a long-term commitment. However, finding a family member with the right skills may be challenging, and objectivity could be affected by family dynamics. Their perspective may also lack diversity.
For more guidance on hiring, download our publication Hiring Great Staff.
Still have questions?
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