What Will Be Your Legacy Control it With A Private Foundation
By Melvin J. Howard
Join the ranks of the Gates, Fords and Rockefeller's of the world, you may be surprised at what you can accomplish. If your calendar has filled with worthy causes seeking your name and your wallet, you may want to consider channeling your time and money into a private family foundation. You can establish a stand by foundation, which is created to receivelifetime contributions or a major bequest, or a flow through foundation, whichconverts appreciated property into cash and distributes the proceeds to public charities but does not build up an endowment. A flow through foundation can provide tax benefits if you have highly-appreciated assets whose sale would result in significant capital gains taxes. Individuals may deduct cash contributions to a private foundation up to 30 percent of the donor’s adjusted gross income (AGI) and appreciated property up to 20 percent of AGI. All contributions specified in a will are fully deductible for estate tax purposes. Your foundation can be a non-operating foundation, meaning it makes grants to help fund the efforts of other organizations or individuals. The alternative is an operating foundation, which runs a facility or institution, such as a museumor research lab. Your foundation’s purpose can be as broad as world hunger or as specific as modest scholarships to a local liberal arts college. Of course, private family foundations must operate according to tax law,including distributing at least 5 percent of assets each year and paying a 1-2percent tax on investment income. However, as part of an overall retirementand estate plan, a private family foundation decreases the amount of taxable assets in your estate. You can make gifts to your foundation without affectingthe annual gift tax exclusion or the gift tax credit. For many high net worth individuals, a major attraction of the private family foundation is the greater control compared to a large lump-sum donation to apublic charity or the less flexible charitable trust. While trust instruments, once finalized, can be difficult to change, a private foundation incorporated as anonprofit can adjust its goals and mission over time.With a private family foundation, you can for generations to come involve yourfamily directly in the issues and activities that mean the most to you. Family members can even receive salaries as trustees, directors or employees of the foundation, provided they legitimately serve in those roles and their work justifies their salary. A private family foundation can provide greater control of your charitable giving, income and estate tax benefits and a way to share your values with future generations. Creating a foundation requires careful consideration and planning. Please consult with your legal, tax and investment advisors for more information.
