Support Organization

A Support Organization (or a Supporting Organization) has been called by some, "the perfect alternative to a Private Foundation. It has a lot of the same benefits but removes a lot of the burden from the philanthropist's shoulders. A support organization is subject to fewer restrictions than a private foundation but offers you less control over administration and distribution.

A Support Organization is closely tied with and often "supports" an exempt entity such as a hospital. Many of the exempt entities are also charities and Support Organization is classified as a "public charity" as opposed to a "private charity" and reaps tax benefits as a result.

Essentially, by establishing a support organization, you choose either one or several charitable organizations to benefit from the support organization. The support organization will manage the funds. The support organization may support more than one charity, but all charities must be named at the time the support organization is established. If you wish to be able to change charitable beneficiaries at a whim you should consider either a Private Foundation or a Charitable Remainder Trust.

Is this right for me?

Do I have genuine charitable intent? - yes

Do I have a larger than average estate? - yes

Do I want to create an entity in which my family can continue to be involved after I have passed on? - yes

Am I certain of the charities I wish to benefit? - yes

If your answers match those above, a Support Organization may be an appropriate planning tool for you.

When you create a Support Organization or gift to an existing one, you are able to take a tax deduction based on the full fair market value of the assets donated in the year of the donation.

There are some major advantages over Private Foundations.

A private foundation must pay out 5 percent of asset value for annual distribution. If the foundations investments have been losing money that means the corpus of the foundations assets would be diminished. A Support organization, on the other hand, must pay out substantially all its net income.

A Support Organization has higher income tax deduction than a private foundation—50 percent for cash and 30 percent for appreciated property contributions. This is similar to a Donor Advised Fund.

Is used to be said that there were no self-dealing limitations on Support Organizations and it is true that there are few prohibited transactions then with a Private Foundation, however, recently the IRS has determined that there have been abuses and there are now some self-dealing restrictions on Support Organizations.

How Do I Make a Gift Using a Support Organization?
You may gift to an existing Support Organization, or if you choose you may create a Support Organization of your own. A support organization is created by a formal document that describes the involvement of the specific charity or charities to be benefited and those who will be instrumental in choosing gift income recipients from among the charities named in the document. (this may be you and your family members.)

Support organizations should only be considered with the help of your financial and legal advisors. They should be part of a well thought-out financial and estate plan. Once created, a support organization is an effective setting for implementing your family values and perpetuating those values after your death.

There are also some disadvantages of a support organization:

Less control than a private foundation.

Less spontaneity and less freedom to choose charities; must be structured to support specific charities.

Assets Used With This Tool (Support Organization])

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