We guide and assist HNWI in their family and philanthropic ambitions; by guiding them with establishing trusts and private foundations.
If you regularly donate large sums of money, you might be wondering whether you should start your own private foundation. Perhaps you see a social need that hasn’t been met. Or perhaps you’re intrigued by the prestige associated with running a charitable foundation in your own name. In this article, we’ll tell you how you evaluate whether it’s worth your effort.
What Is a Private Foundation?
The most common type of foundation is the grant-making foundation.
Benefits of Having a Private Foundation
If you want to contribute to a good cause, the easiest way to do it is to write a check. So why do tens of thousands of people go to the trouble of starting up and operating private foundations?
For one, a foundation can consistently fund a select cause and provide cumulative benefits to the recipients over many years of donations. So, people starting a foundation are often seeking permanence, according to Exponent Philanthropy, formerly called the Association of Small Foundations.
Some families start foundations to create a legacy, according to Exponent Philanthropy. A foundation established in a loved one’s name can honor that individual even after they have passed away. Establishing a foundation in a family name can also encourage family members to participate in a common – and often bonding – cause.
This type of private foundation is a not-for-profit organization primarily funded by one individual, married couple, family or corporation. The private foundation’s assets are called an endowment, which is invested to generate income for the foundation. The endowment is used to fund its operations and make grants.
Like public charities, private foundations are defined under section 501(c)(3) of the Internal Revenue Code. In fact, “private foundation” is the default status given to organizations granted 501(c)(3) status. Unlike a public charity, a private foundation typically makes donations, called grants, to other charities. It usually does not conduct its own charitable operations. Private foundations make grants either to fund an organization’s general operating expenses or to fund a specific program. They can also make grants to individuals if they follow IRS rules. The activities of a private foundation, like those of a public charity, must benefit the public in order for the foundation to maintain its tax-exempt status.