Benefits of a Private Foundation

Do you have an interest in putting more structure and planning into charitable giving? You may want to consider a private foundation. Although the funds from private foundations work to serve the public, these charitable vehicles offer significant benefits as well.

What is a Private Foundation?

A private foundation is a classified as a tax-exempt, 501(c)3 organization type of independent legal entity or charitable organization that is set-up by an individual, family, or corporation to support charitable endeavors. A public charity relies on public fundraising to support its activities, whereas a private foundation generally has one source of funding: an individual, family, or corporation.

As the donor of the private foundation, you have the ability to write the foundation’s mission, who to include on the board, where the funds are invested, and the ability to specify how and when the funds are used.

In addition to supporting U.S. public charities, a private foundation may:

  • Make international grants.
  • Award scholarships.
  • Give funds directly to individuals for disaster relief and hardship assistance.
  • Make program-related investments including, loans, loan guarantees, and even investments in for-profit businesses.
  • Run their own charitable programs.

A private foundation provides control and flexibility, making it an ideal choice for donors who want to transform equity with purpose.

Benefits of a Private Foundation

More Effective Philanthropy

Foundations provide a more organized, strategic way of giving. Private foundations are a vehicle for ensuring your resources make a positive impact and can help you implement your plan to achieve that goal.

A Family Affair

When you choose to establish a private foundation, you decide to create a legacy that extends far beyond your lifetime, employing family members to serve as board members or for the foundation itself. A private foundation provides excellent opportunities for teaching children and young adults about giving back while making philanthropy a family affair.

Stronger Public and Community Relationships

Private foundations have the potential to create strong relationships throughout the community and with the general public, elevating the donors’ public image in the process. This heightened recognition can help foundations bring more attention to specific causes.

Other benefits of private foundations include:

Giving through a private foundation offers incredible advantages over giving as an individual. Not only are you able to magnify your philanthropic impact, establish a legacy, and bring your family together, but you are also able to offer these financial benefits as well.

  • Immediate tax deductions upon your initial monetary gift.
  • Avoid capital gains tax when selling donated appreciated property.
  • Reduce or eliminate potential estate taxes – When assets are contributed to a private foundation, they are excluded from the donor’s estate and are not subject to federal or state taxes.
  • Potential elimination of capital gains taxes by donating highly appreciated assets to the private foundation itself.
  • Reduce your income tax for each year in which you make a contribution. – Donors receive an income tax deduction for any amount contributed up to 30% of the donors’ adjusted gross income.

In some cases, the tax treatment for contributions to a private foundation are less advantageous than the tax treatment of donations to public charities. If donating to public charities is your primary goal, private foundations can easily follow IRS procedures and grant charitable organizations grants.

Setting Up a Private Foundation

  1. Name your foundation.
  2. Define your foundations’ purpose and the guidelines it will follow in making its 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 nonprofit corporation. To ensure that donations to your private foundation are tax-deductible, an Application for Recognition of Exemption must be submitted using IRS Form 1023 within 15 months of the foundation’s creation.

Private Foundation Management Service

For over 37 years, Trust Company Oklahoma has efficiently managed private foundations. Our extensive experience overseeing the details from daily management of foundations and endowments has helped many reach their philanthropic goals.

Our team is ready to assist you with the accounting, legal, and charitable education you need. We are also prepared to help draft investment policy statements, administrative policies as-well-as coordinating the screening process, selection, and allocation of grant requests from charitable organizations.

Are you interested in learning more about starting a private foundation? Our team is ready to help.