Staying Compliant Without Losing Your Soul

A Practical Reflection on Rules, Integrity, and Quiet Discipline

Several years ago, I received a late-night email from a foundation trustee. He wasn’t panicking—but he was close. Their accountant had flagged a potential self-dealing issue: the foundation had reimbursed a board member’s travel expenses without proper documentation. The amount was small. But the impact? Big enough to shake their confidence.

“It’s just so easy to miss something,” he wrote. “We’re trying to do good. I don’t want a technical mistake to undo our work.”

That message stayed with me. Because beneath it was a feeling I’ve seen in many foundations: a quiet fear of doing something wrong—of breaking a rule, crossing a line, or getting tangled in red tape.

And while compliance may not be the most glamorous topic, I believe it’s one of the most important. Not just because the IRS requires it—but because trust, once lost, is hard to rebuild.

A Well-Run Foundation Doesn’t Just Do Good. It Does Things Right.

In my years advising ultra-high-net-worth families and foundations across the U.S. and Asia, I’ve seen what responsible stewardship looks like. It’s not perfection. It’s consistency. It's systems. And most of all, it’s humility—the willingness to ask questions, get help, and double-check.

Here’s what I’ve learned about staying compliant without losing your soul in the process.

The Practices That Protect and Strengthen

1. Keep the Records—Even If No One Ever AsksOne foundation I support in California maintains a simple but meticulous system: every board meeting has minutes, every grant has documentation, and every expense has a receipt. Most of it never gets reviewed. But if it ever did, they’d be ready. The board sleeps better for it.

2. Know the Boundaries: Self-Dealing Is Not FlexibleThe U.S. tax code is very clear on this: foundations cannot engage in most financial transactions with insiders—no matter how well-intentioned. That means no renting office space from a board member, no buying services from a relative, and no selling discounted goods to the foundation. One family in Hong Kong learned this the hard way when they tried to donate software from their own company. Their heart was in the right place. But the law wasn’t.

3. Understand the 5% Rule—And Plan AheadPrivate foundations must distribute at least 5% of their assets annually for charitable purposes. That includes grants and reasonable operating expenses. I’ve seen foundations scramble at year-end to meet the requirement—sometimes liquidating investments at a loss. One simple solution? Build a rolling calendar and review distributions every quarter.

4. Pay Attention to Investment PracticesIf a foundation invests too aggressively—especially in speculative assets—it can trigger what’s called a “jeopardizing investment.” Foundations are expected to invest prudently, with both long-term sustainability and mission in mind. If you’re ever unsure, consult your advisor. Risk can be embraced. Recklessness cannot.

5. Compensation Must Be ReasonableIf you pay staff or directors, document why. Compare to similar roles in similar foundations. One foundation I advise does an annual benchmarking review—just to make sure they’re within norms. It’s not just about avoiding penalties. It’s about modeling fairness.

6. Transparency Builds CredibilityEvery foundation must file IRS Form 990-PF annually. It becomes public. That’s not a threat—it’s an opportunity. I encourage families to view their filings as a reflection of who they are. Clarity. Accuracy. Integrity. These things matter.

A Family That Made Compliance a Culture

There’s one foundation—a modest one, started by a first-generation immigrant family—that I deeply admire. They don’t have a big team. They don’t have lawyers on retainer. But they have a binder. In that binder is every bylaw, policy, meeting minute, and grant letter they’ve ever written. They review it every January. It’s become their ritual.

They don’t do it because they’re afraid. They do it because they care. And it shows.

Closing Reflection

Rules won’t define your impact. But they do protect it.

Running a foundation with integrity isn’t just about avoiding fines or audits. It’s about showing your partners—grantees, communities, future generations—that your commitment is real.

So yes, ask the questions. Build the systems. Stay humble enough to keep learning.

Because in the end, the most inspiring foundations I’ve worked with aren’t just generous. They’re accountable. And in today’s world, that’s a legacy worth building.