Reasons to Consider Creating a Family Foundation

A family foundation is a unique way to fulfill your philanthropic goals. Although often thought of as a financial or estate planning tool for only the very wealthy, it can be considered by anyone
making a sizable gift to a charitable or not-for-profit organization.

A Foundation for the Future
Beyond the joy of philanthropy itself, a private foundation offers financial and emotional rewards to you and your family. It lets you play an active role in supporting causes you feel are important.
It gives you privacy by allowing you to make gifts anonymously and can shelter you from unwanted solicitations.

It can also bring a family closer together with appointments to the foundation’s board of directors. Consider the sense of family unity when parents, children, brothers and sisters work together in charitable endeavors, as well as the legacy of generosity you’ll be building for future generations.

A private foundation funded with a major donation may be large enough to provide compensation for family members who carry out administrative functions or serve on the board. And, if you or a
family member are approaching retirement (or are already there), a foundation provides an opportunity to stay active.

By reviewing grants and performing other foundation duties, you can play an important role in the welfare of the community and the world at large while increasing your knowledge and broadening your skills in new ways.

Tax Issues to Consider
For the most part, contributions to a private foundation qualify for income, estate and gift tax deductions in much the same way as other charitable contributions.

To obtain tax-exempt status for your private foundation, you and your financial advisors will have to wade through complex tax code rules and restrictions. Three of the more noteworthy are:

• The maximum income tax deduction available for contributions to a private foundation in any year is 30% of a donor’s “contribution base,” a modified form of adjusted gross income (AGI). For long-term capital gain property, the limitation is 20%. The comparable figures for most other kinds of charitable contributions are 50% and 30%, respectively.
• A private foundation must annually distribute at least 5% of its assets’ value. For example, a foundation with assets of $5 million must give away at least $250,000 to charity this year.
• An excise tax is imposed on a private foundation’s annual net investment income. Generally speaking, the tax is 2% but in some instances may be reduced to 1% of net investment income.

Is a Private Foundation Right For You?
While a private foundation is an excellent way to help others, there are many other ways to make substantial contributions and enjoy significant benefits. Consult with your financial advisor, tax
planner or attorney to learn more about integrating your financial and estate planning goals with your philanthropic objectives.