TRANSFERRING PRIVATE FOUNDATION ASSETS

Benefits of Working with us

Increased Income Tax Deductibility
As a public charity, we enjoy a more favorable tax treatment than private foundations. For instance, gifts of closely held stock and real estate are deductible for their fair market value rather than just the cost basis.

No Payout Policy
There is no annual 5% payout required by the IRS for funds we hold. The administrative fee is low with potential reductions available for significant contribution amounts.

Grantmaking Flexibility
Donors have full access to our expert grantmaking services, including research and grant monitoring. Donor advisors may make grant recommendations to our Board.

The Donor Advised Fund Option
With this option, the assets of the private foundation are used to establish a donor advised fund with us. The private foundation Board of Directors become advisors to the fund and work with us to set priorities for grantmaking and request specific grant disbursements to be made. We handle the administrative burden associated with the wishes of the private foundation's Board of Directors.

It is a fairly simple process to terminate a private foundation and create a donor advised fund. A private foundation is terminated if it distributes all of its net assets to a community foundation fund. There is no need to notify the IRS in advance. However, there is a final income tax return that the private foundation must file. The transfer must be of all rights, title and interest to all of its net assets.

If the private foundation is liable for any taxes, the liability carries over to the community foundation. While the contribution to the community foundation cannot have any material restrictions, it is not a material restriction for the community foundation to pay these taxes. Consequently, the fund at the community foundation established with the transfer of the private foundation's net assets can be charged with any taxes or other obligations associated with the private foundation.

Why a Donor Advised Fund?

1. A Donor Advised Fund enables the private foundation to play an active role in grantmaking while keeping administrative costs at a minimum and tax advantages at a maximum.

2. Establishing a Donor Advised Fund offers similar benefits as a private foundation but with less paperwork and lower costs. A feature many donors appreciate is the ability to name their children as successor advisors. This allows the family to remain involved just as if they had private foundation.

One option is to donate all, or a substantial portion, of the private foundation's assets to a Donor Advised Fund. A Community Foundation assumes nearly the entire operational burden, thus providing the greatest administrative relief. A second option is to donate only the annual required 5% payout to a Donor Advised Fund. This is a 'qualifying distribution' and satisfies the private foundation payout requirement. This option allows you to continue to control your foundation's investment strategy since you continue to hold your foundation's assets and only distribute the 5%. With both options, the private foundation essentially make one grant per year and the funds can be disbursed in accordance with their recommendations.

How we can help
At first, creating a private foundation is exhilarating, but over time, the process of managing the foundation's affairs may not be as easy or rewarding as it once seemed. Priorities change and family dynamics shift. The passage of time can impact private foundations in a variety of ways:

- Original purpose has become obsolete
- Government regulations increase
- Operating costs increase
- Annual 5% payout requirement becomes burdensome
- Administration becomes time-consuming
- Children move away or lose interest
- Investment costs increase

Using our services may solve many concerns for a private foundation:

- Private foundations must comply with stringent IRS regulations
- Gifts to private foundations have limited tax benefits
- Private foundations are taxed
- Information on private foundations is a matter of public record
- Private foundations require a significant commitment of time

When comparing the start-up costs, IRS restrictions, administrative burdens and tax benefits, many individuals find working with us to be a simple and cost-effective alternative. By transferring funds to us, the private foundation can maintain involvement and be assured that intelligent grantmaking will continue in the name of the foundation for generations to come.