LKM does not provide legal or tax advice. Readers of this document should not rely on any statement made herein as constituting such advice and must obtain their own independent legal or tax counsel. Readers should not rely upon any suggestion or recommendation from Leventhal/Kline as advice regarding reader's legal or tax obligations or duties under Federal or State law.
FAQs About Private and Family Foundations

What is a private or family foundation?
A private foundation is a not-for-profit corporation or charitable trust through which an individual or family organizes and channels its philanthropic giving. A family foundation is simply a private foundation which is established by donations from one or more family members and usually governed by a board made up of members of the donor family.

What are the benefits to the donor of establishing a private foundation?
A foundation allows the greatest degree of flexibility, control and perpetuity of any charitable vehicle. The donor maintains greater control over both the investment and distribution of its assets. A foundation magnifies the impact of the donor's gift, enabling the donor to give more over a longer period of time and creates a family legacy of philanthropy. Unlike a direct gift, which usually benefits one recipient on one occasion, placing charitable assets in a private foundation perpetuates the donor's generosity and furthers his or her charitable interests for as long as it exists. Because a private foundation is required to spend only a part of its annual investment returns each year, the donor’s founding gift generate many times that amount over time to support its charitable mission.

How is a private foundation established?
After the corporate or trust structure is determined, the donor may make an initial gift to establish the corpus of the foundation. This gift can be made from cash, stocks, real estate, or other assets. While the donor may realize significant tax advantages by forming a foundation, tax savings are often not the primary motivator in making this choice. Additional donations may be made to the foundation at any time by the initial donor or others and the foundation may be used as a destination for the disposition of appreciated assets or as the beneficiary of a testamentary gift. The foundation can be designed as a "flow-through" foundation which does not have an endowed corpus, but instead receives annual gifts from the donors to fund their charitable interests. LKM works with your attorneys and tax advisors to determine the structure that is right for you and manages the details of setting up your foundation. One established, LKM provides easy and professional on-going administration and assistance with achieving your charitable goals through your grant-making.

Is there a minimum amount needed to establish a foundation?
There is no minimum contribution or corpus required for the establishment of a private foundation. Donors considering this option should consult their estate planning professional and/or tax advisor to determine whether a private foundation meets their particular needs. For a private foundation to be an effective philanthropic vehicle, it is generally felt that a minimum of about $25,000 should be available for annual giving. This amount may be generated from income from the corpus, annual contributions, or a combination of the two. Sometimes a foundation is created with a small initial corpus in anticipation of periodic funding or receipt of a testamentary gift.

Who can serve on the board of directors of a private foundation?
The founder/donor(s) may chose the board of directors, who are often members of the donor's family, trusted advisors or employees. Boards are often used as a way of involving the children and grandchildren of donors in the charitable activities of the family and can be an enduring means for a family to pass its philanthropic interests and values down through succeeding generations LKM assists the board in taking as active a role as it chooses in setting the foundation’s philanthropic strategoes, giving guidelines, investment policies, and grantmaking. LKM will also assist younger family members to develop their philanthropic portfolios and become effectively functioning members of the board.

What is the difference between a private foundation and a supporting foundation or donor advised fund?
A private foundation is the most flexible and most closely controlled charitable entity for the donor and his or her family. A supporting foundation or donor advised fund is a choice for donors who are comfortable with giving up a significant amount of control of their assets and charitable giving to a public charity or community foundation. While a supporting foundation is less administratively complex than a private foundation, the donor does not control the board of the supporting foundation which must by law be comprised of a majority of representatives appointed by the public charity. Ownership of the funds of both a supporting foundation and donor advised fund ultimately pass to the public charity at which it is housed.

Isn't operating a private foundation complicated?
A foundation is, essentially, a non-profit organization that has planning, administrative and management needs. In addition, a private foundation must comply with specific Federal and State tax codes and reporting requirements. With LKM handling these requirements, they need not be burdensome or present a barrier to achieving your philanthropic goals. LKM also helps you to effectively carry out the philanthropic mission of the foundation with a philanthropic strategy and grantmaking focus supported by evaluation and assessment of outcomes so that the foundation can measure the impact of its giving and how it is making a difference in the areas it cares about.