Setting up a private family foundation is not just for millionaires. It can be a great way to legally circumvent hefty estate taxes while contributing towards worthy causes. Depending on the amount of assets within your estate plan, it may be beneficial to consider the merits of setting up a private family foundation as part of your estate plan.
Private foundations offer many benefits including tax breaks, as well as the ability to control your gifts and share the causes you value with future generations. They allow you the flexibility of determining where your charity funds will be distributed as well as which causes you are choosing to focus on. The contributions needed to maintain a private foundation are not excessive and can one can be established with a minimum of $25,000 a year. These contributions can be sourced from outside donations, charitable gifts and endowments.
The funds deposited into a private foundation can be tax deductible by up to 30% of the donor’s adjusted gross income. In addition, all contributions specified in a will are tax deductible for purposes of the estate. When setting up a private foundation, the owner can also establish it in such a way that it acts as a secondary foundation or a standby foundation. In this way, it can be set up to receive lifetime contributions from a major organization. Another option is to set up the fund as a flow through foundation which doesn’t build up an endowment but instead collects an appreciation from property assets and distributes these to other charities. This can be a great option if the investor has sizable assets that may otherwise be subject to hefty capital gains taxes.
A foundation can be a wonderful means of involving your family in causes that are close to your heart. You can set up the foundation for the purpose of medical research, disadvantaged children, or any other conceivable cause. The foundation can either be established as an operating foundation or a non-operating foundation. In an operating foundation, there is an established structure such as a research facility or museum. If however, the foundation owner simply wishes to contribute without establishing a specific organization, a non-operating foundation offers this alternative. The funds can be directly gifted to grants, charities and other funding organizations.
A private family foundation allows the estate owner to have greater control than another charity investment vehicle such as a charitable trust. Unlike a charitable trust, a private family foundation can be established as a non-profit and may adjust its goals and mission statements over time. In addition, having a private family foundation lessens the amount of taxable assets for the entire estate.
Although setting up a private family foundation may not be a possibility for everyone, for those with the funds to contribute to a worthwhile cause, it can be an excellent option. A foundation can remain in the family for years to come and can provide a family with greater control over its donations than that of large lump sum gifts or charitable trust. Consult with your estate planner to see if setting up a private foundation may be right for you.
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