Private Foundation

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 families.

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 shelter.

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.