Private Foundation Board Fiduciary Duties

What are the Fiduciary Responsibilities for Private Foundation Board Members?

Three core fiduciary duties provide the framework for board responsibilities:

Duty of care means showing up prepared: reading materials, asking questions, and obtaining enough information to make an informed decision.

Duty of loyalty means putting the private foundation first: disclosing conflicts of interest, avoiding the appearance of “insider” advantages, and recusing oneself when a conflicted matter is discussed or decided.

Duty of obedience means staying true to the private foundation’s charitable purpose and following the rules that apply to private foundations specifically, including your governing documents, state law, donor restrictions, and key federal tax requirements.

What Board Decisions are Frequently Challenged?

Decisions involving insiders or heightened risk warrant particular care because they are more likely to draw scrutiny. The following are areas that call for careful review, documentation, and consideration.

Related-party transactions

If a founder, director, substantial contributor, or a family member (or a business owned by them) could benefit from a deal, pause and apply extra discipline. Private foundations face strict “self-dealing” rules, and even well-intended arrangements can create exposure. Practical safeguards include getting independent bids or pricing information, documenting why the transaction is in the foundation’s best interest, and requiring the conflicted person to disclose the relationship and recuse themself from discussion and voting.

Compensation and service arrangements

Competitive pay for staff and advisors is appropriate, but the board should be able to explain why amounts were approved. Use an independent group (often a compensation committee), review comparable data (peer foundations, published surveys, tax returns of other foundations, and/or independent compensation consultants), approve terms in advance, and capture the rationale in the minutes. It’s a best practice to have written employment agreements in place for top private foundation officials. Also watch for “extras” that can create misunderstandings or penalty exposure later, such as severance, bonuses, expense allowances, loans, or personal use of private foundation assets.

Diversion or misuse of assets

Allegations of missing funds, improper reimbursements, or restricted grants used for the wrong purpose require a calm, structured response. Follow your whistleblower and document-retention procedures, assign oversight to independent directors, and involve counsel early on. If an issue is confirmed, focus on corrective action (recovery, discipline, and/or control improvements) and transparency in required reporting. As part of its fiduciary oversight responsibilities, the board should understand the private foundation’s internal controls, work with management to address identified weaknesses, and monitor whether the controls remain appropriate and effective. These controls include clear approval thresholds, separation of duties, and regular financial audits or reviews.

Best Practice Tips for Board Members

• Ask for the “board packet” early: materials, budget impact, alternatives, and the recommendation (so decisions aren’t made on the fly).
• Keep conflicts visible: update annual disclosures, name any perceived conflicts in the meeting, and require recusal when an insider could benefit.
• Document the why: minutes should reflect key questions, data reviewed, and the rationale, not just the final vote.
• Use independent benchmarks: for compensation or vendor selection, rely on comparables and outside experts as needed.
• Know the “hot spots”: acts of self-dealing, taxable expenditures, excess business holdings, and jeopardizing investments all carry IRS penalties and correction requirements. Check with your tax advisor or counsel if you are not sure whether a transaction or investment falls into these areas.
• Strengthen financial oversight: approval thresholds, separation of duties, regular variance reporting, and periodic audits or reviews.
• Review Form 990–PF before filing: to ensure accuracy and proper representation of the foundation’s programs and activities. Form 990-PF is a public document and therefore a primary source of information for potential scrutiny.
• Plan for transparency: assume major decisions may be reviewed later (including through Form 990-PF reporting and public scrutiny).

Quick checklist for your next board meeting:

1. Confirm conflict-of-interest disclosures are current;
2. Ask what alternatives were considered when decisions are made;
3. Verify who is independent before a vote;
4. Document any recusals from votes or other official decisions;
5. Request and review supporting data; and
6. Ensure the minutes capture the discussion and rationale.

How GRF Can Help

Effective governance requires more than written policies. It requires a practical framework that supports informed decision-making and clear accountability. We can help private foundations and their boards understand fiduciary responsibilities, evaluate governance practices, review related-party and compensation arrangements, and strengthen the processes used to document significant decisions.

Our team can also assist management in assessing whether internal controls are appropriately designed and implemented, help boards understand and oversee those controls as part of their fiduciary responsibilities, and provide audit, tax, and advisory support related to financial reporting and Form 990-PF compliance. Where legal interpretation is required, we can work alongside the foundation’s legal counsel to help address issues promptly and thoughtfully.

Contact us online or reach out to us at the contact info below to discuss how GRF can help you.