Private Foundations are typically funded by a single individual, family or business. However, you don’t have to be Bill Gates to establish your own foundation.
Of the over 91,000 private foundations in existence today, 66% have assets under $1 million, according to IRS data. Through Foundation Source, it is practical to start a foundation with as little as $250,000 and grow it over time.
Private foundations are:
- Independent legal entities
- Organized exclusively for charitable, educational, religious, scientific or literary purposes
- Controlled and funded by a single individual, family or business (not public fundraising)
Contributions to the foundation are tax deductible. Foundations are required to pay out 5% of their previous year’s net average assets each year in qualifying distributions, which include charitable donations as well as certain administrative expenses.
Benefits of a Foundation
Here are a few of the unique benefits of this powerful, flexible giving vehicle:
- Get a current-year tax deduction, but give when you feel like it
- Retain full legal control over foundation governance, assets, and spending
- Create a lasting legacy that links the family name with good works
- Hire family members and reimburse foundation-related expenses
- Pass on values and skills to younger generations
- Make tax-deductible grants directly to individuals in need
- Run charitable programs without setting up a separate nonprofit
Private Foundations and Donor-Advised Funds: A Side-by-Side Comparison
In looking to create a charitable vehicle, you may be considering whether to establish a private foundation or a donor-advised fund (DAF). At the most basic level, the difference between a DAF and a private foundation is the construct, or form, in which each entity is created and operated
Funding and Investment Options
Private Foundations are typically funded by a single individual, family, or business. They can be funded with, and continue to hold, a wide variety of assets. Other giving vehicles typically liquidate any assets that aren’t publicly traded securities shortly after funding.
Assets that can be held in a private foundation include:
- Cash and publicly traded securities
- Alternative assets, including private equity
- Real estate
- Tangible assets (art, jewelry, collectibles)
- Intangible personal property (copyrights, patents, royalties)
- Life insurance and annuities
If you have a Charitable Remainder Trust, you can typically name your foundation as the beneficiary.
Foundation Source does not manage assets. We work closely with the trusted financial advisor you designate, and share our expertise on special considerations that affect assets within a private foundation.
Private foundations have broad latitude to pursue any activities as long as they advance a charitable purpose.
In addition to supporting public charities and other types of nonprofit organizations, a foundation can:
- Make grants to individuals for disaster relief and economic hardship
- Provide loans that are repaid to the foundation
- Set up scholarship and award programs, and choose the recipients
- Grant directly to international organizations
- Provide funds to for-profit companies, as long as they’re used for a charitable purpose
- Run its own charitable programs, such as a coat drive or soup kitchen
Our staff of foundation experts will guide you every step of the way, so you can easily take advantage of every IRS-sanctioned option to accomplish your charitable goals.