Ways a Private Foundation Can Use a Donor Advised Fund:
- To help with year-end excise tax planning you may determine that, with some additional qualifying distributions, excise tax can be reduced. A private foundation may contribute additional qualifying distributions to a donor-advised fund at CFGC. Those funds are then available for future charitable use.
- To level a foundation's peaks and valleys in grant making. In years of low qualifying distributions, a foundation may want to add more to its fund as a way of maintaining the favorable tax rate. In years of high grant activity, a donor advised fund may be used to supplement a foundation's grant disbursement activity, without dramatically increasing the private foundation's average pay out ratio.
- To accumulate funds for a long-term program commitment. A private foundation may set aside funds as qualifying distributions. Several rules must be followed including obtaining the IRS approval by the end of the tax year in which the amount is to be set aside. The CFGC is an alternative, whereas contributions to a donor-advised fund are qualifying distributions that can be accumulated over a period of years.
- Grants from a donor-advised fund can be made anonymously.
- If a private foundation has excess business holdings the IRS imposes additional tax on the value of the excess business holdings. The excess holdings can be gifted to the CFGC for charitable purposes, which is an attractive way to ease the problem.
Transferring a Private Foundation
A private foundation
can transfer their assets to the CFGC in order to ensure the future
of a charitable cause. In doing so the private foundation eliminates many of the burdens
associated with maintaining a private foundation.
By transferring the assets of the foundation a more efficient and effective approach will be established to maintain the mission, name, and pattern of your charitable giving. The two primary requirements for the termination of a private foundation are (1) the private foundation must distribute all of the net assets to one or more tax-exempt organizations and (2) the recipient organization has been in existence for a continuous period of at least five years preceding the distribution.
A private foundation can establish a donor-advised fund in the name of the private foundation. The CFGC's status as a public charity means that grants made to it by the private foundation constitute qualifying distributions fulfilling its expenditure responsibility.
A donor-advised fund allows continued involvement in the distribution of grants from the named fund. The trustees of the private foundation reserve the right to make specific recommendations regarding the charitable distribution from the funds investment income as well as principal. The private foundation will receive recognition for grants disbursed from the fund or, if the trustee prefers, can remain anonymous. The existing private foundation trustees can serve as the fund's advisory committee. The fund can be set up in less than a day.
The Benefits:
The private foundation can establish a permanent philanthropic fund
under a similar name within the Community Foundation (CFGC).
The CFGC eases the administrative and financial burden of keeping the private foundation's purpose current. The CFGC's experienced staff will handle the accounting, reporting and grant making on the foundation's behalf.
A fund at the CFGC may also result in a greater tax benefit for the donors.
Assets of the private foundation may establish an unrestricted, field of interest, or donor advised fund at the CFGC. In the donor-advised format, the board of trustees may become advisors to the fund, working with the CFGC to set priorities for grant making and suggestions as to how the disbursements are to be made.
