Making Philanthropy Both Personal and Smart

 The purpose of life is to discover your gift.
The work of life is to develop it.
The meaning of life is to give your gift away.

— David Viscott

Ever sit down to watch “Downton Abbey” or the latest Masterpiece series and see the words “With funding by . . . the ____ Foundation” (or “____ Corporation) briefly appear on the screen? Perhaps you thought, “I’d like to fund a cause myself. Bet there’s a win-win there, too.”

And, you would be right—and then some.Charity word cloud

While most people start private foundations for philanthropic reasons, there is a tax/estate planning benefit as well. If you have charitable goals, and especially if you’d like to achieve those goals alongside family members and in your family’s name—for perpetuity—starting a private foundation can be a very attractive estate planning option. Whether your pet cause is scientific research, scholarships for inner city youth or even public television, you can create a legacy of good works, and enjoy significant tax advantages along the way.

What is a Private Foundation?

A private foundation is a legal entity through which you support public charities of your choosing. During your life, the foundation is funded by your tax deductible contributions, which are then distributed, usually by awarding grants. After your death, the foundation is funded with a bequest from your will and/or trust, or as a primary or secondary beneficiary of your qualified plan or IRA.

What are Some of the Perks?

You can fund your foundation through donations of cash or other assets, such as mutual funds or stocks. With cash, you benefit tax-wise by being able to take a deduction of up to 30% of your donation. But with non-cash assets, there’s an even bigger benefit: By moving low-cost basis assets (such as mutual funds) into your charitable foundation, you can avoid capital gain taxes you’d otherwise incur at the time of sale and get an income tax deduction to boot! Additionally, you reduce the 1099 amounts that would have been generated by leaving the assets in your personal accounts. Combine the good you’re doing for your cause with the triple tax benefit and you’re looking at a win-win-win-win opportunity.

Like a public charity, a private foundation is a 501(c)(3) organization. Unlike a public charity, however, a private foundation allows you far greater control over who receives your financial support and how your organization is run. One of the great advantages of having a private foundation is that you’re free to keep the structure of your organization “in the family.” If you like, your entire board can be made up of family members and close friends.

How Do I Start One?

Contrary to popular belief, you don’t need to be mega-wealthy to start a private foundation. But you do need to know what you’re doing in order to set things up right: while as many as 75,000 nonprofit applications are filed with the IRS each year, less than half secure a 501(c)(3) designation. The good news? With planning, a clear purpose, and good counsel, you can be helping others in no time. The first critical questions you need to answer include:

  1. Why do you want to set up a foundation?
  2. What cause(s) is dear to you?
  3. What do you want to achieve with your giving?

Once you’ve gotten clear on the above, some next steps will be:

  1. Choose a name for your foundation.
  2. Select board members.
  3. Incorporate
  4. Draw up a conflict of interest policy.
  5. Create funding guidelines.
  6. Apply to the IRS for tax-exempt status.

Combine the philosophy of Viscott with a desire for lower taxes and a bit of “I want to be the master of my own philanthropic destiny,” and you get Private Foundation. Whether you’re a billionaire or not, forming a private foundation can be your family’s path to building a legacy of good works in your community and beyond.

If you want help setting up a private foundation, our firm is here for you. We’ll make the process as fast and seamless as possible, so you can start “giving big”—and saving big, too.

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