Terminating a Private Foundation
If you are
involved in a private foundation, and have found that the time and costs
involved are greater than you expected, you might consider terminating
your private foundation by transferring some or all of the assets to a
Donor Advised Fund.
Administrative
paperwork, expense, research on charitable organizations, and ongoing
legal and financial due diligence are only some of the factors to consider
when maintaining a private foundation. For
the founder or family members the work can be drudgery. see
An Efficient Alternative
Over
time, private foundations often struggle with the following issues:
- The
original purpose of the foundation no longer has the urgency it once
did.
- Financial
and administrative factors make it difficult for the foundation to operate
effectively.
- The
original founder may be slowing down, and the children or grandchildren
may not share his/her passion.
- Busy
schedules and geographic dispersion make it increasingly difficult to
provide the administrative attention.
- The
founder desires that his or her children focus on the family's philanthropy,
not on the burden of foundation administration.
These
considerations, along with the increased recognition of advantages of
Donor Advised Fund as a family foundation alternative, have prompted families
to terminate their private foundations and transfer assets to Donor Advised
Funds at AEF.
The
AEF Donor Advised Fund - a simple and effective alternative:
Active
Role for the Donor
AEF Donor Advised Funds offer you uniquely flexible ways to manage your
giving. The Fund provides you and your family with a tax-wise way to
support charities on a flexible timetable and build a lasting legacy
generations to come.
Lower
Ongoing Costs
The
cost to maintain your Donor Advised Fund is low (1% or less of Fund
balance)
Contribution
Flexibility
AEF can accept and hold a wider array of asset types. In comparison, a donor's interests in a particular business
may be significantly limited in a private foundation.
Better
Tax Benefits
In a Donor Advised Fund, contributions of cash to the organization are
deductible at the full rate (up to the 50% of AGI) rather than the limited
rate (30%) for a private foundation. For contributions of publicly-traded
or closely-held stock, the deduction is at the full fair market value
rather than the donor's cost basis for a private foundation. see
Tax Benefits
Low
Administrative Burden
In contrast, donors to Donor Advised Funds have far fewer responsibilities.
Record keeping is greatly simplified. AEF assumes all back-office tasks,
such as compliance monitoring, state and federal filings, verifying
each grantee's tax-exempt status, and grant disbursements in accordance
with IRS guidelines. see Comparison
No
Excise Taxes
The 2% annual excise tax that a private foundation pays on the net investment
income is eliminated.
Flexible
and Simple Grant-making Options
Much like a private foundation, families can set up their Donor Advised Fund to reflect their
family's name and values, and recommend
grants from their Fund to a wide range of charities across the US.
No
Payout Requirement
Donor Advised Funds are not required to comply with the minimum 5% payout
in making annual grants and distributions.
Privacy
A Donor-Advised Fund at AEF provides donors flexible
solutions in maintaining privacy. In comparison, private foundations
offer little privacy and no anonymity. With a private foundation, all
contributions and distributions are public record.
- Contribution
privacy.
- Investment
privacy.
- Administration
privacy.
- Grant-making
privacy and grant-making anonymity.
Investment
Management
Assets in an AEF Donor Advised Fund can be invested in a wide array
of investment choices. see Investments
AEF gives donors the ability to maintain a relationship with an existing
financial advisor. The selected advisor can provide the Fund an investment
approach that is customized and individually managed account. AEF does
not pool investments with other Foundation funds.
The Mechanics of Terminating a Private Foundation
Section 507 of the Internal Revenue Code permits termination of a private
foundation in either trust or corporate form and the distribution of its
assets to a public charity. A private foundation can simply transfer its
assets to a Donor Advised Fund at the American Endowment Foundation and
file the final 990-PF to the IRS afterwards. The American Endowment Foundation
qualifies as a public charity into which a private foundation may distribute
all or part of its assets. A transfer of all assets not only releases
the private foundation from the reporting requirements of the Code, but
also terminates the payment of the excise tax imposed on private foundations.
State law may require additional steps to terminate the foundation’s
legal existence as a nonprofit corporation or charitable trust. Creating
a Donor Advised Fund at AEF can be accomplished by completing a simple
application.
Some transfer their assets in a lump sum; others start with a minimum
contribution of $10,000, and then add to their Fund over time.
Foundations considering a transfer should get help from an attorney with
experience in handling this kind of transaction.
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