A private foundation that uses the Community Foundation’s philanthropic services can solve management concerns and build a strategic relationship with the Foundation.
Your private foundation can have more impact by working with the Community Foundation because of our capacity to be an advisor, partner, facilitator and convener.
There are several ways private foundations can work with the Community Foundation:
Create an Advised fund parallel to your private foundation
Gift your foundation’s annual payout to a Foundation fund, or
Transfer your foundation’s assets to an Advised fund or become a “supporting organization” at the Community Foundation.
Option #1: Create a parallel advised fund to your private foundation.
By creating a parallel Advised fund at the Community Foundation, a private foundation allows its trustees to access the expertise of a community foundation's strategic grantmaking and philanthropic services without changing your current private foundation structure.
If you are not sure if a private foundation is right for you, create an advised fund prior to beginning the protracted and expensive process of establishing a private foundation. This allows you to experience what philanthropy is all about before committing to the requirements and long term maintenance of a private foundation.
Option #2: Gift the foundation’s annual payout to a Community Foundation fund.
On occasion, the trustees of a private foundation may face timing issues, or have difficulty deciding on worthwhile organizations to meet the annual 5% payout requirement. The Community Foundation, as a public charity, can solve this problem by accepting a grant(s)from a private foundation’s annual payout.
Because a private foundation’s contribution to the Community Foundation is a “qualifying distribution,” it counts towards the 5% payout requirement. The private foundation will essentially make one grant (issuing just one check) each year, and the Community Foundation will disburse grants as recommended from the fund’s advisor. This option not only simplifies the private foundation’s tax reporting, it also allows its trustees to continue to guide its investment strategy and work with the Community Foundation on effective, strategic grantmaking.
Option #3: Transferring your foundation’s assets to an Advised fund or becoming a “supporting organization” at the Community Foundation.
Families, individuals and others who are responsible for managing private foundations often find themselves burdened by the administrative requirements and/or concerned that they are not doing justice to the foundation’s charitable purposes. And … with private foundations increasingly subject to regulatory scrutiny and onerous reporting requirements, private foundations are weighing the costs of continuing to conduct their work as they have over the years against looking for ways to minimize their costs and maximize their impact.
Private Foundations are permitted to terminate and transfer their assets to a public charity. The Community Foundation is a public charity. By transferring a private foundation to the Community Foundation, you can be assured not only that thoughtful grantmaking will continue in the name of the foundation for generations to come; but also significant savings and efficiencies will result from an affiliation with a public charity that is favored by the tax laws.
Advantages:
For example, your
new charitable vehicle will no longer be subject to an excise tax on its income
nor will it be subject to the 5% payout requirement. Gifts to an Advised
fund with a community foundation are also deductible for income tax purposes
up to 50% of the donor’s AGI as opposed to 30% of AGI for gifts to a private
foundation. Public charities can also hold a greater variety of assets.
Since the Community Foundation submits a single annual tax form which covers
all of its component funds, the private foundation is also relieved of filing
an annual 990-PF return.
When a private foundation decides to become a part of the Community Foundation, the Community Foundation and its legal counsel can assist the private foundation through the termination process which is not arduous, but can be daunting for those not familiar with it. If the directors of the former private foundation would like to stay involved, they can serve as advisors to their fund and continue their grantmaking as before. They can also provide for their successors.
The leaders of former foundations often opt to scale back their involvement and rely on the professional staff of the Community Foundation to provide some or all of the following services:
Reviewing and updating its original purpose to address current and future needs,
Providing knowledgeable grantmaking guidance and administration,
Pooling assets with the Community Foundation’s endowment to achieve efficient and cost-effective investment management,
Helping donors and family focus on philanthropy and the transfer of values to new generations,
Assuring anonymity for donors, fund advisors, and grants, if desired.
As noted above, another option for those wishing to affiliate their private foundation with the community foundation is the use of an interesting provision of the tax code called “Supporting Organizations.” For information on this option, click here.
