- Asset Protection Planning
- Business Succession Planning
- Charitable Giving
- Disability and Special Needs
- Elder Law
- Executor and Trustee Responsibilities
- Financial Powers of Attorney
- Inheritance Planning
- Lifetime Gifts
- Medical Directives
- Planning for Minors
- Retirement Accounts
Setting up Your Own Charitable Foundation
A private foundation is an organization that is formed and operated to fund charitable activities through grants and other gifts under Internal Revenue Code Section 501(c)(3), but does not fall within the category of a public charity. Whereas public charity uses publicly-collected funds to directly support its initiatives, a private charitable foundation is generally created by a single benefactor, usually an individual or business.
People who are charitably inclined during their lifetime may appreciate the idea of establishing a private charitable foundation that will continue after they pass on. The foundation can be created while you are living or it can be established after you pass on. To qualify, a percentage of the foundation’s assets must be distributed to charity each year. You can name whomever you wish to run the foundation, including your children, and the foundation can pay them a reasonable salary. You can be very specific about which charities you want to support, or you can leave that up to the trustees of the foundation to decide (within Internal Revenue Service (IRS) guidelines, of course).
The tax benefits of setting up your own foundation can be substantial. You can save estate, capital gains, and ordinary income taxes:
- The assets you give to the foundation will be removed from your taxable estate. So, for example, if you give your entire estate to the foundation (or the entire amount over the estate tax exemption), your estate will pay no estate taxes.
- There will be no capital gains tax when the assets are sold by the foundation, which provides a benefit with appreciated assets.
- If you donate certain assets to a private foundation, you can get a charitable income tax deduction for the full fair market value up to a certain percentage of your adjusted gross income: Charitable deductions for contributions to foundations are limited to 30 percent of adjusted gross income for cash and 20 percent of adjusted gross income for long-term publicly traded appreciated securities.
So, instead of giving all that tax money to Uncle Sam, you can set up your own charitable foundation, donate your assets to it, control how the money is spent, and provide a benefit to others. Be sure to consult with an experienced estate planning attorney regarding the formation and governance of private charitable foundations because the rules and restrictions in this area of the law are complex and can have significant legal and tax consequences. Visit https://www.irs.gov/charities-... to learn about the life cycle of a private foundation, exemption requirements, required tax form filings, and more.