Private Foundation

A Private foundations is basically private charity.  You may gift to an existing foundation (such as the one at the local college) or you may create your own.  Creation of a Private foundation is generally used by wealthy families to create a family legacy of giving.  For the family that has a larger estate and has a genuine desire to support charitable causes, the private foundation has a lot of possibilities as a planning tool.  Much good has resulted in communities at large by the creation and use of private foundations.  Congress has greatly limited the tax benefits of private foundations, but they may still be a suitable giving vehicle if control is the major objective in giving.

Benefits of a private foundation:

Control
A Family Foundation (a Private Foundation created by a family) is one's own personal charity.  You must have a private board, but you may hand select the board.  Frequently, a donor and his or her children frequently constitute the entire board of a private foundation.  (again a reminder to be careful of prohibited transactions.)  This gives an opportunity to have the family involved (maybe even as paid staff if you "play by the rules.") and teach the younger generation about giving.

Private/Family Foundations provide a great way to be spontaneous in gift giving. The donor and the foundation's board have absolute control and can hire their own staff; they can choose which charities to benefit.

The private foundation is the tool of choice among the wealthy. 

Family Foundations you may recognize are the Rockefeller Foundation and the Bill & Melinda Gates Foundation.  Though these are known because of the extreme wealth and notoriety of their founders, many wealthy families have followed suit and have taken advantage of the benefits a foundation offers.

 
There are also some disadvantages of a private foundation:

Expense
Private Foundations are set up under the laws of your state.  It is generally wise to hire an attorney or attorneys to create a Private Foundation.  The start-up and administrative costs for creating a Private Foundation are high.  There is also a 2 percent excise tax on net investment income and other financial disadvantages that can affect your ultimate giving ability.

Detailed Administration
There are requirements for record keeping and tax return preparation for the foundation; detailed reporting and allocation of expenditures are required.  While this adds to the expense of creating a private foundation and also adds to its complicated nature, it also sometimes provides opportunities to employ family members and pass on a "reasonable" amount of wealth.

 How Do I Create My Own Private Foundation?
The legal and financial professional members of your charitable planning team should assist you in designing and drafting the necessary documents to create a private foundation. Specific provisions in these documents will be tailored to meet your individual and family charitable goals.

Though a Private Foundation offers a lot of control, care must be exercised in the administration of the Private Foundation.  Some education and/or oversight is necessary to make sure that you do not violate regulations by participating in prohibited transactions such as self-dealing, failure to meet distribution rules, excess business holdings, speculative investments, and lobbying efforts or other noncharitable distributions.  Your legal advisors should help you with this.

If you do not feel a Family Foundation is for you, a Donor Advised Fund or a Support Organization may be what you are looking for.

Assets Used With This Tool (Private Foundation)

• Art
• Cash
• Collectibles or other tangible personal property
• Commercial real estate
• Equipment or inventory
• Farm or ranch
• Life insurance policy with cash value
• Patents, royalties or copyrights
• Personal residence
• Retirement plan assets
• Securities
• Unimproved property