Establishing a Private Foundation

Are you charitable-minded? If you choose to help others through philanthropic opportunities, you should consider adding a private foundation to your Estate Plan. In part four of our series, Estate Planning 101, we aim to tell you eight benefits of private foundations and why they should become a part of your estate planning strategy.

What is a Private Foundation?

A private foundation is a non-government and nonprofit association classified as a tax-exempt, 501©3 organization independent legal entity or charitable organization set up by an individual, family, or corporation.

Private foundations offer incredible tax savings to your estate. Tax savings include reducing or eliminating potential estate taxes and providing you with immediate tax benefits such as an income tax deduction. Your income tax deduction works for any amount you contribute to your foundation up to 30% of your adjusted gross income, all while helping you give consistent, organized, and targeted giving.

What is the difference between a private foundation and a public foundation?

A private foundation is just like a public charity or a public foundation in that both seek to carry out some charitable focus or mission. They are also tax-exempt by the IRS.  However, the easiest way to understand the difference between the two is this; a private foundation is not a public charity because it only seeks out financial support from the individual, family, or corporation.

Why would someone choose to create a public foundation or public charity?

Public foundations or public charities represent the most significant amount of active 501©(3) organizations out there. Generally, individuals prefer public charity status because it better means the organization their foundation aims to form. Public foundations have a higher donor tax-deductibility giving limit, and they can gain support from other public charities and support from private foundations.

On the other hand, private foundations give you a reduction in estate tax and offer double capital gained tax benefits such as the ability to donate appreciated property to a foundation. Donors can also claim a charitable deduction for the total market value of appreciated stock that they hold in publicly traded companies.

Eight Benefits of Private Foundations

Setting up a private foundation and choosing to donate monetarily through a private foundation offers so many advantages over choosing to give as an individual. For example, not only are you able to magnify the philanthropic impact you make on the world, but private foundations also help you to establish your lasting legacy while bringing you and your family together.

When foundation management clients initially seek our foundation management specialists’ guidance, we often hear that they would like to set up a private foundation to reduce their annual income tax liability and eliminate certain assets from your taxable estate. Still, there are so many more attractive benefits creating a private foundation offers.

Private Foundations allow you to:

1. 1. Private foundations help you create a legacy by allowing you to dictate your choice of humanitarian ventures.
   2. When you have a private foundation set up, you can instill values and traditions in future generations.
   3. Private foundations help ensure that you continue to deepen your social consciousness and awareness.
   4. You can participate in the administration of your private foundation, thus seeing firsthand the impact your humanitarian venture has on the world.
   5. Through your participation in your private foundation, you can oversee and dictate how your funds are invested over time, thus ensuring the longevity of your foundation through continued growth.
   6. Another great benefit of private foundations is that it allows your ability to encourage others to join you in your efforts, potentially doubling or tippling your foundations’ impact.
   7. Your private foundation will allow you to pass on wealth management tips to your children and grandchildren, giving them the tools they need to invest their own money for a prosperous future.
   8. A private foundation allows you to make an impression on any cause you may be passionate about, thus increasing your fulfillment and lifelong goals.

When should I set up my private foundation?

As you seek information about forming a private foundation, it is essential to determine if you want to have your foundation set up during your lifetime or strictly in the event of your death. When you create a foundation during your lifetime, you can engage your children or family in charitable activities, ensuring a smooth transition and training for those who will manage the foundation after your passing, carrying on your philanthropic goals.

Though you are able to set up a private foundation after death, it is essential to understand that you will not have as much control over the foundation in comparison to if you were to set it up prior to your passing.

How do I Set Up a Private Foundation:

1. 1. Name your foundation.
   2. Define your foundation, its purpose, and the guidelines it will follow for making grants.
   3. Fill out, organize, and submit all documents necessary to the IRS and state.
   4. Fund your foundation and start giving!

Private foundations are created under state law as a charitable trust or as a nonprofit corporation. To ensure a private foundation is tax-deductible, you must submit an application for Recognition of Exemption to the IRS using Form 1023 within the first fifteen months of your private foundation’s creation.

How to Better Manage Your Private Foundation:

It is important to have efficient management of your private foundation in order to ensure its success, longevity, and impact. After all, foundation management takes more skills and resources than most individuals can grasp upon their foundation’s conception.

The professionals at Trust Company of Oklahoma have over thirty-seven years of experience managing the details that private foundations require on a daily basis, and we are ready to assist you with any accounting, legal, and charitable education you may need. In addition to that, we are prepared to help you draft investment policy statements, administrative policies, as-well-as as helping to coordinate the screening process, the selection, and the allocation of grant requests from other charitable organizations. We manage these tasks so you can focus on what matters most, such as the impact your legacy will make over time.

Are you ready to leave both a personal and family legacy through a private foundation? With Trust Company of Oklahoma, you have access to a team of foundation management experts without adding employees to your organization. Click here to connect with our foundation management team to discuss the possibilities your legacy holds!