Are you looking to make a meaningful change in the world? Perhaps there’s a pathway you can take that doesn’t require you to change jobs – only expand your vision.
Private family foundations are incredibly successful engines of positive change. These foundations have uniquely helped bring about major change – from Sesame Street to the white lines on the highways and the 911 emergency system. Today, their transformative work continues, powering solutions to environmental challenges, poverty and other persistent problems.
Giving through a private foundation offers tremendous advantages over giving as an individual. Not only can you magnify your philanthropic impact, establish your personal legacy, and help bring your family together, but they offer financial benefits too. A private family foundation is one way to create a framework for giving that can enable you to establish a philanthropic legacy. It is a vehicle designed to allow families to achieve their philanthropic goals in a tax efficient manner.
For instance, my family donated to the University of Kansas Hospital to help with the purchase of MediGuide Technology. This technology provides state of the art views of the heart without having to expose people to significant amounts of radiation. The gift was put to use immediately by the University of Kansas, who were one of the first in the nation to get this technology. We’re proud of this donation and the acknowledgement we received as the technology is housed at the Raizada Family Electrophysiology Lab located at the Center for Advanced Heart Care at the University of Kansas.
A private family foundation is a type of private foundation set up by a family, funded with the family’s assets and often run by family members who can also participate in its charitable grantmaking. Family foundations like mine serve philanthropic ambitions, and it can adapt as the family’s composition and charitable focus change.
About 50 percent of private foundations in the U.S. are family foundations, according to the Council on Foundations. Family members will often serve as members of the foundation’s board and will decide how the assets of the foundation can be used to meet the foundation mission—by making grants to charities or individuals. As with all private foundations, family foundations must disperse at least five percent of assets every year. A private family foundation’s grants are publicly viewable, which can make it easier for nonprofits and donors to learn what the foundation cares about and which causes and organizations it supports.
A family foundation has an initial board of directors which typically includes the family patriarch and/or matriarch. Subsequent or additional board members usually consist of family members or close personal advisors that are familiar with the Founders’ goals and aspirations for the foundation. When established, a private family foundation is funded with cash, appreciated securities, or other assets. The foundation then reinvests these assets to fit the investment goals set forth by the board using the investment income and appreciated assets to make future donations or grants to charities.
Although the funds and activities of private foundations serve the public, these charitable vehicles offer significant benefits for donors as well, enabling you to reduce your income tax for each year in which you make a contribution; avoid capital gains taxes depending on the characteristics of property contributed; reduce or eliminate potential estate taxes; and grow your charitable funds in a tax-advantaged environment while passing control of them to future generations to continue your philanthropy.
It is advisable to consult with an experienced CPA and estate lawyer as setting up private family foundations and administering them is complex. Some disadvantages of starting a private foundation include the initial time commitment and costs; excise taxes; record keeping requirements; regulatory requirements; annual reporting requirements; lower deductibility caps and less favorable treatment of some capital gains gifts.
A private foundation provides ample opportunities for teaching children and young adults about giving back while making philanthropy a family affair. Involving the next generation in your philanthropy is one way to ensure that your family’s charitable legacy endures. The process of working together as a family can instill philanthropic values that last a lifetime and deepen social consciousness. Research indicates that giving makes us happier and increases personal fulfillment and involving the younger generation in the foundation can build practical competencies such as leadership, teamwork, investment management, negotiation, and social awareness.
In my view, engaging the next generation in philanthropic pursuits should be an ongoing process that is constantly reinforced and setting up a family foundation is one of many good options for doing so.
