Individuals and businesses who are thinking about creating a private foundation - and those managing an existing private foundation - should consider all of the options available to them to ensure that the assets and time being committed to such an undertaking are being effectively and efficiently deployed. The Community Foundation can be a knowledgeable partner or alternative in many situations faced by private foundations.

Considering a private foundation

Which path should you choose to realize your charitable dream?

The creation of a private foundation is only one option available for those seeking to create a formal avenue for supporting charity. Many find establishing a private foundation as the best solution for them. However, most individuals and businesses can be better served by creating a fund or supporting organization with the Community Foundation.

There are many costs associated with private foundations, including fees for professional advisors and filing costs to initially establish the foundation and have it recognized by the Internal Revenue Service as a charity, ongoing costs to file annual tax returns and reports, investment service fees, and the cost in time to manage the daily affairs of the private foundation. You must disclose publicly your involvement in a private foundation and there is no room to remain anonymous.

In addition, a private foundation is required to pay excise taxes and distribute a minimum of 5% of its value annually, and it is subject to other excise taxes and rules. Contributions to a private foundation are deductible but to a lesser amount - and sometimes are valued less - than if the same gift was made to a public charity. For example, the deduction for a gift of long-term, appreciated publicly traded securities made to a private foundation is limited to 20% of adjusted gross income - but is limited to 30% of adjusted gross income if made to a public charity. Similarly, a gift of long-term, appreciated interest in a privately held company or real estate is deductible at its cost basis if gifted to a private foundation - but is deductible at fair market value if gifted to a public charity!

Many individuals and businesses find that a smarter alternative is to establish a fund or supporting organization with the Community Foundation. Donors to the Community Foundation may remain anonymous and can deduct their gifts into these funds with the preferred tax treatment as gifts to a public charity. These funds can grow completely tax-free and are not subject to the mandatory 5% distribution rule or other excise taxes. In addition, you can avoid administrative costs and hassles, as our professional staff is available to handle all of the details for you – from helping identify grant opportunities to maximizing the tax benefits of your gifts into the fund.

Services and opportunities for existing private foundations

Every year, more and more private foundations turn to the Community Foundation for services to help them with various situations they encounter. Some areas in which the Community Foundation can be of assistance include:

• The termination or transition of the private foundation. We can help you establish a fund or supporting organization into which your private foundation can be merged so as to avoid future administrative costs, excise taxes and other burdens associated with the operation of the private foundation.
• Annual grant distribution requirements. Some private foundations create funds at the Community Foundation to hold the required annual distribution they need to make because, for example, a project at another nonprofit that was to receive the distribution is not ready to receive the private foundation grant in time for the private foundation to meet its payout requirement. These funds can then be distributed to the other nonprofit when it is ready to proceed, without reducing the support available to our community due to payment of unnecessary excise taxes.
• Grant opportunities. The Community Foundation is grateful for the many grants private foundations have made to our programs and initiatives to better our region. Some of these programs and initiatives have been developed with the input of private foundations looking for an efficient and credible partner to make these opportunities a reality. We always welcome inquiries from private foundations about possible partnerships and grant programs.

Please contact us at (313) 961-6675 to learn more about how the Community Foundation can serve you as an alternative to a private foundation or how we can work with your private foundation to make southeast Michigan a better place in which to work and live!