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FAQs - Private & Family Foundations

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Establishing a foundation demonstrates a seriousness about giving that can support you (and your family) to give philanthropy more thoughtful time and attention.

-Anne Slepian and Christopher Mogil, "Welcome to Philanthropy," National Network of Grantmakers, 1997










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FAQs: About Family and Private Foundations

What is a private foundation?

A private foundation is a not-for-profit corporation or charitable trust established by an individual, family or corporation to channel its philanthropic giving. A family foundation is simply a private foundation established by donations by one or more members of the same family and is usually governed by a board made up of members of the donor family.

What are the benefits to the donor of establishing a private foundation?

A foundation provides the greatest degree of flexibility, control and perpetuity of any charitable vehicle and allows the donor to maintain control over both the investment and distribution of its assets. A private foundation perpetuates the donor’s generosity and charitable interests for as long as it exists because it is required to spend only a part of its annual investment returns each year. The corpus may be preserved, which enables the foundation to give away many times the value of the founding gift over time. The foundation becomes an enduring means for a family to pass its philanthropic interests and values down through succeeding generations.

How is a private foundation established?

A nonprofit corporation or charitable trust must be created and qualified with the appropriate state entities. Within 15 months of formation, the entity must then file IRS Form 1023, Application for Recognition of Exemption, and required State filings, to receive tax-exempt status as a charitable organization. The donor makes an initial gift of cash, stock, real estate or other assets. Additional donations may be made to the foundation at any time by the founder or others. The foundation may be used as a beneficiary of a testamentary gift or as the remainderman of a Charitable Remainder Trust.

Can LKM help me to establish a foundation?

Yes. LKM works with your attorneys, tax advisors and investment managers to determine the structure that is right for you and manages all the details of setting up your foundation. LKM provides a one-stop solution to getting your foundation up and running quickly and provides professional administration and grantmaking services to support its effective operation.

Who can serve on the board of directors of a private or family foundation?

The founder/donor(s) may serve on the board and choose the other directors, who are often members of the donor’s family, trusted advisors, friends or employees. Family foundation boards are often used as a way of involving the children and grandchildren of donors in the charitable activities of the family. LKM works with younger family members to develop their philanthropic interests and helps them to become effective board members. LKM assists the board in taking an active role in articulating the foundation’s philanthropic goals and developing its strategies.

Is there a minimum amount needed to start a foundation?

There is no minimum contribution required for the establishment of a foundation. According to the Foundation Center, over 80% of all private foundations in the U.S. have assets of less than $1 million, and the IRS estimates that about 14,000 foundations have assets of less than $100,000. Some donors "flow through" annual contributions to their foundations to support their grantmaking while building a corpus over time. For a private foundation to be cost-effective, it is generally believed that not less than $25,000 should be available for annual grantmaking. This amount may be provided through income from the corpus, annual gifts of cash or stock, or a combination of the two.

Isn’t operating a foundation complicated?

A foundation has the same planning, administrative and management needs as any other corporate entity. In addition, foundations must comply with specific and changing Federal and State tax codes and reporting requirements pertaining to non-profit corporations. LKM provides a comprehensive approach to foundation management that relieves donors of operational concerns and allows small foundations to operate with confidence. LKM enables small foundations to benefit from professional management and grantmaking assistance without the burdensome cost of hiring staff and opening an office.

PLEASE NOTE: LKM does not provide legal or tax advice. Readers of this document should not rely on any statement made herein as constituting such advice and must obtain their own independent legal or tax counsel. Readers should not rely upon any suggestion or recommendation from Leventhal/Kline as advice regarding reader’s legal or tax obligations or duties under Federal or State law.