Nothing illegal about doing legal things but there are rules and self dealing is a issue.

If the goal is to get your kids money without the expectation of them doing anything for it there are better ways. Why go through the hassle of setting up a fraudulent foundation? What kind of attorney's and accountants will participate in an obvious illegal venture? All you are doing is generalizing so we might as well say all poor people are criminals too because some poor people steal things. If a person intends to create a foundation and donate money to it with a stipulation that the children are on the board or payroll and they do nothing for it at some point it will be a issue if its abused. My guess is that this problem is much smaller then what you want to believe and most foundations act in good faith. I personal have been involved in many and have yet to witness this kind of bullshit. Do foundations sometimes get top heavy, yes, do they make mistakes, yes, but self dealing as a practice, I doubt its that big of a issue.