Everything you need to know about starting a private family foundation

If you are philanthropically inclined, we applaud your generosity. Philanthropic giving is both beneficial to a charity’s mission and yourself by lowering your annual tax liability and because it makes you feel good about giving back to the community. 

If you have significant wealth, perhaps you have heard about and maybe even considered a private family foundation. Perhaps the best well known is the Gates Foundation, but many families choose to use their wealth for the benefit of others. With a private foundation, the family is able to preserve its charitable intent over many generations. A foundation is not inexpensive to set up and there are on-going operating costs, but it can come with many benefits, both monetarily and emotionally. There is much you need to understand about running a family foundation before starting one. 

Understanding what a private family foundation is

Before applying for private family foundation 501(c)(3) status, you should take a moment to make sure you really understand the pluses and minuses. 

The pluses and minuses of a private family foundation include:

• Donations from the family are deductible up to 30% of the Adjusted Gross Income (AGI) of the taxpayer and can be carried forward up to five years.
• Family members can serve on the staff of the foundation and be paid for their services, but all arrangements must be arm’s length. 
• Since the family members are often on the Board of Directors, contributions can continue to those charities whose mission aligns with the family.
• The foundation must give away at least 5% of its value every year.
• The expense of setting up and maintaining the foundation are not insignificant and the administration is complex at times. Therefore, you will need the assistance of an attorney, CPA and an investment team.

The expense of setting up and maintaining the foundation are not insignificant and the administration is complex at times. Therefore, you will need the assistance of an attorney, CPA and an investment team.

An alternative to a private family foundation is a donor advised fund. All of the organizational and operating costs are borne by a custodian, but the family still controls how the money is dispersed each year. 

Take a movement to consider which option is best for your family and charitable goals before moving forward with a decision.

Talk to a ProVise CFP® professional about starting a philanthropic organization

For people with your values, it is not enough to support yourself and make life easier for you. You want to make a difference in the world by giving directly to public needs and interests. Without the right guidance, it can be hard to know what to give to, how much to give or how frequently to give. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals are here to help you make decisions like these.

We can work closely with you to get to know your goals and the beliefs that drive you so we can help you make decisions for starting and operating a philanthropic organization.

We can create a written plan for you at a fiduciary standard of care. All of our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about private operating foundations or other philanthropic organizations? Contact ProVise today to schedule a complimentary consultation.