Grant-Making in Family Offices: Proposal to Payout

Why ad-hoc grant-making fails at scale

Most family office philanthropic programmes begin the same way: a principal receives a compelling pitch, writes a cheque, and moves on. This approach works tolerably well when annual grant volume is below $500,000 and the family has a tight, shared sense of philanthropic purpose. Beyond that threshold, the absence of a documented process creates real problems. Grants become reactive rather than strategic. Due diligence is inconsistent, exposing the foundation to reputational risk if a grantee misuses funds. Board members, often unprepared for a vote, rely on the principal's intuition rather than structured information. And post-grant accountability evaporates because no one thought to require it upfront.

According to the Council on Foundations' 2023 Family Foundation Report, family foundations with formalised grant policies reported 45% fewer governance disputes than those operating on informal norms. That figure is not surprising. A written process forces alignment on questions that families often defer: Who can nominate a grantee? What evidence of impact do we require? How do we handle a grantee that pivots its mission mid-cycle? Answering these questions in advance, not in the heat of a board meeting, is the foundational act of mature philanthropy.

Designing an RFP that attracts the right applicants

A request for proposals is not merely a form. It is a filtering mechanism, a communication tool, and the first step in the due diligence chain. An RFP that is vague or aspirational will attract a wide, poorly matched applicant pool, consuming staff time and disappointing organisations that never had a realistic chance of funding. An RFP that is specific—naming focus areas, eligible geographies, grant size ranges, and explicit exclusions—signals institutional seriousness and self-selects for qualified applicants.

Core elements of an effective RFP

A well-structured RFP should contain at minimum: a statement of the foundation's theory of change for the relevant programme area; eligible organisational types (501(c)(3) in the United States, CIO or charitable company in the United Kingdom, IPC status in Singapore, and so on); grant size parameters and whether multi-year commitments are possible; a clear timeline from application deadline to award notification; and the specific data or narrative the foundation expects in a final report. Crucially, the RFP should specify what is not eligible—political advocacy, endowment building, or retroactive funding of completed projects, for instance. These exclusions reduce the volume of applications that require a declination letter and the associated administrative overhead.

Family offices operating across multiple jurisdictions should note that distributing funds to organisations in certain countries triggers Expenditure Responsibility obligations under U.S. Treasury Regulation §53.4945-5, which requires the foundation to obtain a pre-grant inquiry, a written grant agreement committing the foreign grantee to use funds for charitable purposes, and annual reports. Failing to satisfy these requirements can result in the grant being treated as a taxable expenditure, attracting excise tax under IRC §4945.

A tiered due diligence framework

Due diligence in grant-making is risk-proportionate, not uniform. A $10,000 grant to a well-established national charity with audited accounts warrants a different level of scrutiny than a $500,000 multi-year commitment to a grassroots organisation in a high-risk jurisdiction. Treating all applications identically wastes staff time on low-risk grants and, perversely, can cause teams to skim on high-risk ones because the process feels bureaucratic regardless of amount.

Tier one: light-touch review (grants under $25,000)

At this level, due diligence typically involves confirming registered charitable status, reviewing the most recent annual report or audited accounts, and conducting a basic reputational screen—a structured web search covering regulatory sanctions, adverse press, and leadership controversies. This should be completable in two to three hours per application and documented in a one-page summary. The goal is to confirm legitimacy and alignment, not to build a comprehensive organisational profile.

Tier two: standard review ($25,000–$100,000)

Standard review adds a financial health assessment—examining the three most recent audited financial statements, assessing liquidity ratios, and reviewing the auditor's management letter for material weaknesses. A site visit or video interview with senior programme staff is standard at this tier. The foundation should also review the organisation's conflict-of-interest policy and verify that the board includes independent members. In the United Kingdom, this aligns with Charity Commission guidance CC29 on internal financial controls. In the United States, it reflects best practices under the Panel on the Nonprofit Sector's Principles for Good Governance.

Tier three: enhanced review (grants above $100,000)

At this level, the foundation should conduct a formal organisational capacity assessment, which evaluates governance structures, financial management systems, human resources practices, and monitoring and evaluation capability. For international grants, this tier requires a pre-grant inquiry document, sanctions screening against OFAC, HM Treasury, and EU Consolidated Lists, and—where the grantee is in a Financial Action Task Force high-risk jurisdiction—an enhanced due diligence file including beneficial ownership verification of controlling individuals. Cross-border grants from U.S. private foundations to foreign organisations that are not IRS-recognised public charities require Expenditure Responsibility procedures regardless of amount, a point that many family office advisors underemphasise.

The due diligence tier is not determined by the principal's familiarity with the grantee. It is determined by grant size and jurisdictional risk. These are not the same thing.

Board approval: codifying the decision architecture

The grant approval process is where many family offices operate on convention rather than documented policy, and where governance failures most often originate. A principal who approves grants verbally and asks staff to ratify them at the next board meeting is not running a governance process—they are running a signing ceremony. This distinction matters because private foundation boards have fiduciary duties that require genuine deliberation, particularly under U.S. self-dealing rules (IRC §4941) and UK charity law's requirement that trustees act in the charity's best interests.

A grant policy statement should specify approval thresholds precisely. A common structure: grants below $10,000 require programme staff sign-off only; $10,000–$50,000 require sign-off from the executive director or equivalent; above $50,000 require full board approval. Multi-year commitments above any threshold should always require board approval, as they create contingent liabilities that must be disclosed in the foundation's annual accounts. Each board meeting should include a standardised grant memorandum for each proposal, prepared by staff, covering the due diligence summary, alignment with the foundation's strategy, proposed terms, and a recommendation. Board members vote on the record, and minutes capture any dissent.

The conflict-of-interest register deserves specific mention. In Singapore, the Charities Act requires IPC-registered organisations to maintain such a register and review it at board meetings where grants are discussed. In the United States, IRS Form 990-PF requires disclosure of grants to disqualified persons. Best practice—regardless of jurisdiction—is to have every board member confirm at the start of each approval cycle whether they have a relationship with any applicant, and to document that confirmation in the minutes. This is not bureaucracy; it is the foundation's primary defence against regulatory challenge and family conflict.

Structuring the grant agreement

The grant agreement is the legal instrument that converts a philanthropic decision into an enforceable obligation on both sides. Many family offices use inadequate templates—sometimes a single-page letter—that fail to specify what happens when a grantee deviates from the proposed use. A properly structured grant agreement should address: the specific purpose of the grant and permitted use of funds; a disbursement schedule (lump sum, quarterly tranches, or milestone-based payments); reporting requirements, including format, frequency, and the metrics to be reported; the foundation's right to conduct a site visit or audit; conditions for clawback or suspension; and, for multi-year grants, annual renewal conditions.

For foundations making grants across borders, the agreement should specify the governing law and dispute resolution mechanism. A grant from a U.S. private foundation to a UK charity governed by New York law and resolved through ICC arbitration is legally coherent. A grant with no governing law clause creates ambiguity that is expensive to resolve. The agreement should also address tax treatment: grants structured as scholarships to individuals, for example, must satisfy the requirements of IRC §4945(g) in the United States to avoid excise tax.

Post-grant reporting: accountability without adversarial oversight

Post-grant reporting is often the weakest link in family office philanthropic programmes. The failure mode is predictable: the grant is approved, funds are disbursed, and the relationship drifts until the grantee asks for a renewal. By that point, there is no documented evidence of what the grant achieved, no basis for comparative evaluation across the portfolio, and no data to inform the next grant cycle.

The reporting framework should be proportionate to grant size and set out in the agreement before disbursement. For grants below $25,000, a single narrative report at grant close is typically sufficient. For grants above $100,000, annual reports should include financial reconciliation—showing how grant funds were spent against the approved budget—alongside outcome data against the metrics specified in the application. The foundation should designate a programme officer who reviews each report within 30 days of receipt, prepares a brief assessment, and flags exceptions for senior review. This process is only functional if the metrics were defined upfront: a grantee cannot report against outcomes the foundation failed to specify.

The tone of the reporting relationship matters as much as the structure. Grantees that perceive reporting as punitive submit defensive, curated reports. Grantees that understand reporting as a mutual learning exercise submit honest assessments, including candid discussion of what did not work. Family offices with mature philanthropic programmes often schedule annual portfolio convenings—bringing grantees working in the same focus area together to share learning—which serve both accountability and relationship-building purposes without the adversarial dynamic of a formal audit.

A post-grant report that arrives on time but contains no useful data is a governance failure that originated in the RFP, not the reporting stage.

Building a portfolio view of grant activity

The final discipline of a mature grant-making programme is aggregation. Individual grant decisions, made well, do not automatically constitute a coherent philanthropic portfolio. At least annually, the board should review a portfolio-level summary: total grants by focus area, geography, and organisational type; the ratio of general operating support to project-specific grants; the percentage of the annual payout requirement met (relevant for U.S. private foundations subject to the IRC §4942 five-percent distribution requirement); and the renewal rate of multi-year grantees. This portfolio view enables the board to identify concentration risks, assess whether the programme is aligned with the family's stated theory of change, and make deliberate decisions about rebalancing rather than drifting incrementally.

For family offices subject to BEPS Pillar Two considerations—typically those with affiliated operating entities in multiple jurisdictions—the philanthropic programme can interact with tax planning in ways that require careful co-ordination between the family office's tax advisors and its philanthropic staff. Grants from a foundation in a low-effective-tax-rate jurisdiction to a related operating entity, for example, may attract scrutiny under the Qualified Domestic Minimum Top-up Tax rules. This is not a reason to avoid international philanthropy; it is a reason to ensure that the philanthropic programme is documented independently of any commercial structure and that advisory sign-off on cross-border grants is obtained before disbursement.