Your Own Foundation Focuses On Charitable Projects

Your Foundation is The Key to Successful Philanthropy

The family of Business that establishes a foundation as the centerpiece for their collective giving will derive the greatest amount of satisfaction from their program of philanthropy.

A foundation helps the family or business organize their giving program in a purposeful manner to achieve their charitable goals. For the same reason that a business entity is created, which is to achieve a business purpose in an organized fashion, so should you create a foundation, to achieve your philanthropic purpose. It all starts with a business plan, just the same as if it were a “for-profit” business, except that the foundation is to be a “not-for-profit.”

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The reason is simple: if your purpose is to help the community, the government says that you don’t have to pay taxes, and even the money you give for the purpose of the foundation is tax-deductible. Even better, others can join you in your purpose and contribute funds that are tax-deductible.

The government acknowledges that in many cases individuals who can benefit the public in their community can do it better than the government can.

Those who have established foundations can tell you the real benefits they have derived from having their foundations. There are many, and most will tell you that one of the biggest advantages is that they have “bonded” more with their family members or fellow employees. Perhaps of greatest significance is the opportunity to make a difference in your community.

The founders of the foundation also have an opportunity to convey their own personal values to the rest of the group. They can also assist them in learning and applying “sound business practices,” such as accounting, leadership, teamwork and every other aspect of running a “business,” even though it is “not-for-profit.”

Another significant advantage is that having your own foundation prepares the participants for service on other boards and committees of charitable organizations in the community. This always leads to opening many doors for business opportunities, and making connections with people they would not have otherwise met.

These are the “social” and “business” aspects of your foundation. However, there are many tax advantages as well. We discuss here the many ways you and others can give to your foundation, and how you and they can benefit from these gifts.

 

What unsuspecting clients often do not realize is that when you establish a non-profit entity you may be merely acting as a temporary trustee for the Internal Revenue Service. Any mis-management of the funds or improper “self-dealing” can cause an immedate I.R.S. penalty of 100% of your funds. This is also true of self-directed IRA accounts.

Therefore, for Asset Protection the client must set up two foundations. The first one is an Endowment Foundation whose sole purpose is to make investments; it must give away a minimum of 5% per year - a simple task. The Operating Foundation protects the Endowment Funds in the event of a lawsuit or mis-management by the actions of the founder; it retains only enough funds to pay expenses.

 

Your Charitable Causes

Gifts and payments from your foundation may be of two different types:

1. You may make gifts to national or community charities, schools, churches and any other charities qualified by the IRS under section 501(c)(3).

Who would you like to help? Do you want to help people with heart disease or cancer? Would you like to improve the facilities at your local hospital? Would you like to provide shelter for the homeless? All of these causes can be benefited by your foundation. You’re probably already making contributions to charities that you feel strongly about. Yet, if you decide to make donations to your foundation, you may also request distributions from your foundation to those charities.

2. Under supervision, you may actually begin a charitable program of your own design. Foundations are able to take care of elderly people; support missionaries worldwide; provide shelters for the homeless; maintain parks, etc. The opportunities are endless!

Simply design the program, have it approved and begin your work. Once your foundation or non-profit 501(c)(3) becomes active, you can request the following services to help organize and maintain your foundation:

• The receipting, endorsement, accounting and deposit of all donations. • The disbursement of funds in accordance with approved purposes. • Posting and bookkeeping of all transactions.

• Confirmations and reporting of all transactions to the founder. • Preparation and filing of all federal, state, and local reports.

You are free to do your charitable giving and directly help those people who really need it. Administration can be provided for you at a much lower cost than beginning your own private foundation, or your own public 501(c)(3) non-profit organization.

Grow Your Foundation

Unless you are planning to donate all the funds your project needs, you may want to raise funds from others. We encourage all our foundations to raise funds from others.

Gifts To Other Countries

You may make gifts to charities, churches and projects in other countries. Direct contributions to charitable activities in other countries are not deductible. If you arrange to make these donations through your foundation, however, they are deductible!

The Excitement Of Foundations

When a person establishes a foundation, and then makes a donation to that foundation, hat person severs the link between himself or herself and the use of that money for non-charitable activities. You as the founder may:

• Contribute to other 501(c)(3) charitable organizations. • Nominate employees to conduct genuine charitable activities for their foundation. • Provide for perpetual advisory leadership for their foundation activities. • Conduct other activities within the parameters of regulations and IRS Code Section 501(c)(3).

• Serve at local nonprofit organizations and distribute grants to them to supplement any salary they may pay to you. • Create a scholarship or grant-making program to help those not related to you who are in need.

Planning Your Charitable Gifts

Estate planning is the process of working out, with an attorney, accountant, trust officer, life insurance agent, or other advisor, and orderly tax-wise arrangement for your estate. The primary objective in any plan should be the fulfillment of your wishes regarding the security of your family and others that you wish to benefit. Tax consequences are an important part of estate planning and are often directly related to the accomplishment of your primary goals. Many taxes can be avoided or minimized with proper planning. The importance of working with professionals in estate planning and making a will or establishing a trust cannot be overemphasized.

Real Estate

For current outright gift of real-estate, the donor may receive an income and gift tax charitable deduction equal to the full fair market value of the property if it is held for more than twelve months and subject to a reduction for potential depreciation recapture. Further, the donated real estate is removed from the donor’s taxable estate for estate tax purposes. Of course, a planned gift of real estate to a charitable remainder trust, pooled income fund or for a charitable gift annuity (where permitted) provides a charitable income tax deduction for the discounted present value of the charity’s future interest in the property.

If the real estate is appreciated in value, the income tax deduction is limited to 30% of adjusted gross income (AGI), with a five-year carry forward for any excess deduction. Of course, a donor may elect a deduction limit of 50% of AGI by reducing the size of the gift by the amount of appreciation. The 50% limit allows a faster write-off, which may encourage donors to make real estate gifts in situations in which the appreciation is modest.

Tax Deductible Receipt

When you donate these items you will receive a tax deduction and receipt for the full fair market value at the date of the gift. In order for all gifts of personal property with a value over $5,000 to be deductible by the donor on their personal income tax, the item must have an independent appraisal and the completion of IRS Form 8283 (Non-Cash Charitable Contribution) to accompany your federal income tax return

Life Insurance

Gifts of life insurance allow donors to make sizeable gifts to the foundation at a relatively low cost. To make such a gift, you would name your foundation the irrevocable owner and beneficiary of a life insurance policy, then deliver and assign ownership of the policy to the foundation. When you give to your foundation the money to pay the annual premium, you will be entitled to deduct that amount. Gifts of life insurance policies may offer excellent estate-planning possibilities. You may designate the foundation as the primary, secondary, remainder, or residual beneficiary of a policy.

Gift Of Property

This includes all gifts of real estate and tangible property. There are many tax advantages that apply to gifts of appreciated real property.

Gift Of Real Property Subject To A Life Estate

You may transfer a personal residence or farm to your foundation, while retaining a life estate (the right to use the property for the remainder of your life). You are entitled to a federal income tax deduction for the fair market value of the remainder interest in the property at the time it is transferred.

Bequest

A bequest is a very simple and uncomplicated way to help provide for the future endowment of your foundation. A bequest may be of a specific sum, a percentage, or the residue of an estate, and may consist of cash, securities, life insurance proceeds, real estate, and/or personal property. A bequest may be made through a will or by a living trust. A carefully planned and drafted trust can preserve maximum amount of an estate for the surviving members of one’s family and others, such as your foundation.

Some Gifting Ideas

Remember that you can donate anything of value to your foundation:

Cash is an obvious gift, but have you thought about deducting a regular amount though your credit card or checking account? We can arrange that monthly, quarterly, or yearly payments are processed automatically from these accounts.

Stocks and Bonds – This is an excellent gift to your foundation. In the absence of other instructions, these will be sold and the proceeds added to your foundation. You can also take a tax deduction for the fair market value on the date of the gift.

You can donate anything of value to your foundation.