Control Your Legacy with a Private Foundation
Private foundations can let you control your gifts, reduce taxes and impart
your values to future generations.
Call it the golf and gala glut: the growing list of charitable parties, balls and outings aimed at raising funds
for charitable causes from religious to educational to medical research. If your calendar has filled with
worthy causes seeking your name and your wallet, you may want to consider channeling your time and
money into a private family foundation.
If you think private family foundations belong to the Gates, Fords and Rockefeller's of the world, you may
be surprised by the estate planning industry’s rule of thumb: a foundation needs to have an annual
minimum of about $25,000 – from endowments, annual contributions or both – available for making
grants. This may be prohibitive to estates under $2 million, but you certainly don’t need the more than
$29 billion that Bill and Melinda Gates have put into their foundation.
You can also establish a stand by foundation, which is created to receive
lifetime contributions or a major bequest, or a flow through foundation, which
converts appreciated property into cash and distributes the proceeds to public
charities but does not build up an endowment. A flow through foundation can
provide tax benefits if you have highly-appreciated assets whose sale would
result in significant capital gains taxes.
Individuals may deduct cash contributions to a private foundation up to 30
percent of the donor’s adjusted gross income (AGI) and appreciated property
up to 20 percent of AGI. All contributions specified in a will are fully deductible
for estate tax purposes.
Your foundation can be a non-operating foundation, meaning it makes grants
to help fund the efforts of other organizations or individuals. The alternative is
an operating foundation, which runs a facility or institution, such as a museum
or research lab. Your foundation’s purpose can be as broad as world hunger or
as specific as modest scholarships to a local liberal arts college.
Of course, private family foundations must operate according to tax law,
including distributing at least 5 percent of assets each year and paying a 1-2
percent tax on investment income. However, as part of an overall retirement
and estate plan, a private family foundation decreases the amount of taxable
assets in your estate. You can make gifts to your foundation without affecting
the annual gift tax exclusion or the gift tax credit.
For many high net worth individuals, a major attraction of the private family
foundation is the greater control compared to a large lump-sum donation to a
public charity or the less flexible charitable trust. While trust instruments, once
finalized, can be difficult to change, a private foundation incorporated as a
nonprofit can adjust its goals and mission over time.
With a private family foundation, you can for generations to come involve your
family directly in the issues and activities that mean the most to you. Family members can even receive
salaries as trustees, directors or employees of the foundation, provided they legitimately serve in those
roles and their work justifies their salary.
A private family foundation can provide greater control of your charitable giving, income and estate tax
benefits and a way to share your values with future generations. Creating a foundation requires careful
consideration and planning. Please consult with your legal, tax and investment advisors for more
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