Private Foundations - A Legacy that Will Last Forever

Controlling Your Social Capital

The thought of eliminating the exorbitant 55% - 60% Marginal Federal Estate Tax imposed on large estates is music to most taxpayer's ears. However, if you believe, as most taxpayers do, that "charity begins at home," then the IRS will win the war and inherit approximately half of your taxable estate. If you concentrate your efforts and do a bit of estate planning, you can decide which charities shall receive a great deal of your Social Capital (your tax dollars).

The best way to beat the estate and gift tax system is to spend all of your hard earned money before you die. If that is not a practical solution, then consider shifting a portion of your estate to charity. This will reduce tremendously the IRS's share and in turn, increase the amount of wealth ultimately passing to your loved ones.

To begin, your "Social Capital" is the share of your estate passing to IRS to pay for roads, schools, bureaucracy and red-tape. In today's political environment, you, the taxpayer, have very little control as to how your tax dollars are spent. Some of the estate planning tools that are available to disinherit the IRS are charitable remainder trusts, charitable lead trusts, pooled income funds, charitable gift annuities and outright gifts to public charities. While these are all very fine and useful methods of helping charity, for extremely large estates it is wise to consider the possibility of establishing your own charity, referred to as a "Private Foundation."

Advantages of A Private Foundation

A private foundation is controlled by a board of directors which may be comprised of family members, along with one or more non-family member(s). This allows you, the taxpayer, to make a charitable income tax deductible contribution to a fund that is controlled by your family. Sounds to good to be true? Subsequent to the donation, the foundation invests the assets in the fund wisely and distributes as little as five percent of the fund annually to your favorite charitable causes. The undistributed corpus of the fund continues to grow income tax free. The tradeoff for these enormous advantages of establishing a private foundation is the cost of establishing and operating the foundation, the aggravation involved in the administration and the tight rules and regulations that must be followed in order to keep in good standing with the IRS. This tradeoff is most often a smart decision to make.

Stewardship

The directors, including your family members, have the fabulous opportunity to direct the investments and select the charitable beneficiaries. This is a time for the family to work together toward a common goal and learn the joy of giving and marshaling assets. The eternal life of the foundation provides an excellent vehicle for sharing family values with future generations. The fact that the board members may be entitled to compensation for their efforts is icing on the cake (this should not be a motivating factor for the creation of the foundation).

Favorable Alternatives

A less expensive and simpler alternative to the private foundation which allows you and your family some level of control is a contribution to the Community Foundation (Collier County, Southwest Florida or Bonita Springs) or a charitable gift fund at a major brokerage firm. These funds allow you to make a charitable income tax deductible contribution while continuing to advise the Community Foundation or gift fund on the charities that do receive annual benefits from your donation.

In conclusion, the private foundation gives you an unmatched level of control and family involvement, while allowing you to substantially reduce the size of your income, gift and estate taxes. Combined with a charitable remainder and/or charitable lead trust, the private foundation is unmatched in establishing a legacy that will last forever.