Private Foundation Case Study

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Estate Plan Concerns

Sam and Doris have been contributors to various charities for many years. They would like to pass on their spirit of giving to their children.

Estate Plan Solution

A private family foundation can accomplish this goal and enhance the overall estate planning for Sam and Doris.

Private Foundation Trust Process

  1. Founder creates a Private Foundation (often referred to as a “Family Foundation”).
  2. Founder contributes selected qualifying assets to the Private Foundation, which is income tax deductible within certain prescribed limits.
  3. The Board of Trustees, which typically includes the Founder and selected family members, controls and manages the Foundation.
  4. Periodically, the Board of Trustees makes grants to selected qualifying charities. Founder creates a Private Foundation (often referred to as a “Family Foundation”).

Benefits

  • Control of Wealth Retained: Control over philanthropic wealth retained, long-term, by the founder and his or her family.
  • Regular Family Meetings: Board meetings provide impetus and encouragement for busy families to meet on a regular basis.
  • Values Lesson: Can be used to demonstrate and teach family members the importance of social responsibility.
  • Community Involvement: Recognition and influence for the family within their community.
  • Tax Deductions: Contributions are income tax deductible, within certain prescribed limits.
  • Asset Growth: Foundation can be used effectively with income tax and estate tax saving techniques to enhance family wealth.

Explanation

Philanthropy plays an important role in the lives of many individuals, and for them, a private foundation (sometimes referred to as a “Family Foundation”) can offer a very attractive way to control and manage the wealth they have dedicated to charitable purposes.

Exempt From Income Tax – Generally, a Private Foundation, typically organized as a trust or as a not-for-profit corporation, is exempt from income tax under the Federal Internal Revenue Code.

Controlled By Board That Includes Family Members – The foundation is controlled and managed by a board of trustees, which typically includes the founder, selected members of his or her family, and perhaps a trusted advisor.

This board is charged with the responsibility of managing the foundation and its assets, and determining periodically the grants that are to be made to qualifying charities (generally, 5% of the foundation’s assets should be distributed to qualifying charities, annually).

Contributions Tax Deductible – Contributions received by the foundation, generally, are tax deductible by the donor within certain prescribed limits.

Other Charitable Strategy Options Available – A private foundation is only one among several alternative charitable strategies, which include supporting organizations and donor advised funds.

However, the private foundation is unequaled in the degree of control and management authority that can be retained by the founder and passed on to succeeding generations of his or her family.

Tax Reduction Formulas To Protect Your Future

Periodic Table of Estate Planning Elements
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View our Estate Planning Periodic Table to see the many options we have available to custom-design an estate plan that exactly meets your specific goals for the future.


The following notice is required by the IRS: Any U.S. Federal tax advice contained in this communication is not intended to be written or used, and cannot be used or relied upon, to avoid tax-related penalties under the Internal Revenue Code, or to promote, market or recommend to another any tax-related matter addressed herein.