Giving to charity is rewarding in many ways. There are many approaches to making charitable gifts. The best approach for a particular individual is depends upon the motivation for the charitable giving, the charities to be benefited, the type of charitable gift, and the size of the charitable gift. Giving through a family foundation may enhance the rewards of charitable giving and create an ongoing legacy of charitable giving for a donor.
The family foundation makes sense for a donor who plans to make significant charitable gifts to more than one charity, desires to create a permanent fund for charitable giving, and wants the donor’s family to be actively involved in the charitable giving process on an ongoing basis.
An important benefit of charitable giving is that the donor can obtain significant tax deductions related to the donations. The tax savings opportunities include income and estate tax deductions. To the extent that assets remain in the family foundation, growth on the assets is tax-free, which avoids capital gains and estate taxes.
There are different types of family foundations for tax purposes. Contributions to a family foundation are generally deductible but there are various limitations on contributions to a family foundation that do not apply to other types of charitable gifts. There are various distribution requirements and excise taxes that apply. A donor considering a family foundation should be well advised of the achievable tax benefits of each type of family foundation.
While tax benefits are important to most donors, the family foundation is most often chosen by those who are interested in the non-tax benefits of this charitable vehicle. The family foundation offers many non-tax benefits that cannot be achieved with other charitable gift techniques.
Many donors establish a family foundation to encourage family involvement in charitable giving. A family foundation offers the opportunity for family members to work together to benefit charitable causes. Often, foundations are set up so that family members meet to discuss management of foundation investments and desirable charitable gifts. The foundation may help perpetuate the family unit by creating the opportunity for ongoing interaction of a positive nature.
A family foundation may bear the name of the donor or his or her family. The family foundation then serves as an enduring memorial to the founder. The philanthropic efforts of the founder can continue beyond his or her life.
The family foundation offers ongoing control and flexibility. The foundation board can monitor charities change charitable beneficiaries when doing so makes sense.
Because there is significant expense and ongoing maintenance related to a family foundation, the foundation will make sense only for charitable donations of significant size. There is no specific threshold as to the size of gift that makes sense. Whether the approach makes sense for a particular donor depends on the overall facts of the donor’s estate and philanthropic desires. The non-tax benefits must outweigh the ongoing cost and expense.
A family foundation is an excellent technique for achieving ongoing family involvement in the community. A foundation may be funded during the life of a donor or upon the donor’s death. The family foundation should be considered by any charitably inclined individual as part of the estate planning process.
© 2009 Parsonage Vandenack Williams LLC
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