Q: What is a private foundation?

A private foundation is a separate, not-for-profit entity which can be controlled by a person, a family, or a business. It is considered a charitable giving vehicle that gives you more control over your assets and how they are distributed, moving the control from the IRS back into the donor’s hands.

Q: How do they work?

A private foundation can be set up with as little as $100,000 and no upper limit on the size of the foundation. The donor will pick an IRS approved 501(c)(3) organization, which would include most charitable, educational, religious, scientific, and literary organizations to which the foundation will donate the assets. Each year, the IRS requires the foundation to give away at least 5% of the foundation’s previous year’s average net assets for charitable purposes.

Q: What are the benefits to opening a private foundation?

By opening a private foundation you will have more control over the assets than with any other giving vehicle. You can also take an immediate tax deduction even if the funds that you gave to the foundation are not being immediately appropriated. Gifts to a private foundation are tax deductible up to 30% of AGI for cash, and 20% of AGI for appreciated securities with a five-year carry forward.

Q: What are the limitations on private foundations?

While it is legal to appoint family members to the foundation, payment from the foundation’s assets require strict adherence to IRS rules and regulations. The IRS has a strict no self-dealing policy. Things that fall into this category include buying from or selling items to the foundation, keeping foundation assets such as paintings or jewelry on private property, or any personal use of the foundation’s assets.