The largest group of private foundations is family foundations, which are usually established by one or two donors. Family foundations ensure that future generations continue to practice philanthropy, and are set up so that the endowment upholds values the donors believe are important. Most founders are successful entrepreneurs who want to use their fortunes to support the communities in which they and their families live. In return, they receive substantial tax benefits from the federal government.

Family foundations may be operated by a local bank, by the founder, by family members, or by a staff hired for that purpose. When a bank is in charge, grant proposals are mailed to a contact person at the bank. Staffed foundations will have an executive director and, as the corpus grows, will hire additional program staff. The board of trustees, which makes decisions about grantmaking, is usually composed of family members and sometimes includes third-and fourth-generation descendants of the donor. There also may be representatives from the community who were asked by trustees to serve on the board.

Some family foundations are established to make gifts to the same organizations the donor has supported for years. These types of foundations generally do not accept grant applications from nonprofit organizations that have not been preselected for funding. Some family foundations serve in this capacity for only a couple of generations; then they become so large that they must broaden their grant-making focus or endow the preselected charities directly.