The idea of a private foundation can be extremely appealing, starting with the chance to completely take charge of your charitable giving. “A chief benefit of a private foundation is control,” says Bill Sutton, head of client philanthropy in the U.S. for UBS Financial Services, Inc. “You and your family make the decisions.” Working through a foundation helps you influence the operations of the organizations you support. With the right structure and funding, it can extend your family’s philanthropic impact far beyond your own lifetime. A foundation can engage or even employ your children or other relatives, helping them understand and embrace your philanthropic values.
A foundation won’t fit every family’s needs. It works best if you like to be active in your philanthropy. Each year, for example, you will be required to pay out at least 5% of foundation assets (which can include certain allowed administrative costs). And there are many other rules and regulations governing a foundation’s operation. It’s crucial to know what you’re signing up for. You can discuss your own preferences with your Financial Advisor to get a better sense of whether a private foundation would make sense for you.
- A private foundation can expand the impact of your family’s giving.
- Foundations give you more control over your philanthropy but also involve far greater responsibility than simply donating cash.
- Donor-advised funds are a popular alternative, and some families use both.
- If you’re moving ahead with a private foundation, be sure to get expert guidance.
How a private foundation works
A foundation is set up with you and other family members or principals serving as board members or trustees. You decide which charities to support, how you’ll invest foundation assets, and who will run the operations. With control comes responsibility—making sure grant recipients are legitimate, filing annual tax returns and other paperwork, and avoiding transactions and investments that tax laws frown upon. “Some of these rules are surprising,” says Emily Brunner, a UBS Financial Services, Inc. wealth strategist. “You have to be very careful to meet the requirements.” For example, with some exceptions, you can’t lease space in a building you own to your foundation. Moreover, with a private foundation the details of your philanthropy are available for public view. Anyone can look up your filings to see what organizations you support and how much you give.