A Private Foundation like Donor Advised Funds can be named
to receive the remainder proceeds from a Charitable Remainder
Trust. Donor Advised Funds work well for Remainder amounts
under Two Million Dollars. Also for those people who do not
have anyone to name as a successor donor advisor. And for
those who want to pre establish an endowment that can run
automatically after their passing.
A Private Foundation is typically used for amounts over Two
Million Dollars. This is mainly due to the increased management
responsibilities, liability exposure and expenses associated
with Private Foundations.
A Private Foundation can also work well in a situation where
a donor of a Charitable Remainder Trust has established their
own non profit 501(c) charitable organization or has a desire
to set one up in the future. In many cases the donor is or
will be active on the board of that charity as well. In this
situation the Private Foundation can provide a little more
flexibility and options to accomplish more specific goals
with the charity it is designed to support.
Let's look at an example:
George and Martha Washington own a strip mall that they originally
built 20 years ago in the suburbs of a major city. There cost
to build at the time was 3.5 Million Dollars. They have since
depreciated their cost basis down to 1.5 Million Dollars.
The city has now grown dramatically and the suburbs now look
more like a part of the city. The Washington's are older and
looking to do some estate planning and diversify what is now
the bulk of their estate as the strip mall is now valued at
20 Million Dollars.
The Washington's are also very active with a small local
non profit in town that helps homeless women with children.
It is a shelter that feeds and houses the families and works
with the women get back on their feet by helping them find
employment and eventually their own housing. The shelter has
had a hard time recently finding the space to house these
The Washington's decide to sell their strip mall using a
combination of a Charitable Remainder Trust and an outright
sale by splitting the interest in the property.
For their income needs they put 10 Million into the CRT and
sell the property with the other 10 Million retained as their
own. The CRT Tax Deduction is used to help offset some of
the taxes on the retained property portion of the sale.
After the sale they donate 1 Million Dollars to the local
shelter from the portion of the sale proceeds from the retained
portion of the property. They will use the monies to purchase
two adjacent properties to the shelter and use the homes on
those properties to greatly expand the shelters ability to
house more families.
The Washington's also established a 2 Million Dollar Private
Foundation, again with proceeds from the retained portion
of the sale. They will use the foundation to donate monies
each year to support the on going management expenses of the
shelter. They also named their Private Foundation as the recipient
of the remainder interest of their Charitable Remainder Trust.
The Washington's have also stipulated that their children
and grandchildren take over the Private Foundation when they
pass away and use the monies to continue to support the local
More Information on a Private Foundation
For more detailed information on a Private Foundation including
a side by side comparison of Donor Advised Funds and a Private
Foundation visit one of our other Charitable Planning web
sites at: www.DonorAdvisedFunds.com.
You can also click here to request
a FREE copy of our Charitable Remainder Trust Planning Guide.
It also has additional information on how to use a Private
Foundation in conjunction with a CRT.
Harding Financial Services, LLC
The information contained on this site is for educational
purposes only, it is not intended to be professional tax or
legal advise; consult a tax advisor about your specific situation.