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.
