Private Foundation Alternative

Click here for a direct comparison of CFBC Donor Advised Funds to Private Foundations.

Private foundations established by a family or business have been a popular vehicle for carrying out philanthropic goals on a long term basis. Through the use of private foundations, the charitable minded have been able to accelerate tax deductions, involve family members and obtain community visibility.

Unfortunately, the administrative burdens of maintaining a private foundation over time can be formidable and costly. Small or even moderately sized private foundations find that employing staff assistance to adequately manage grant requests significantly reduces the funds available for grants. In addition, the tax benefits of gifts to private foundations are more limited than those of gifts to public charities. (For example, many gifts of appreciated property to private foundations can only be deducted at your cost basis rather than their full market value.) Private foundation tax returns are public information, affording little privacy in the operation of the foundation. Often, the charitable interests of the second and third generation family members are not consistent with the founders of the private foundation.

Due to the substantial amount of time and expense involved in maintaining a private foundation, managers often seek an alternative means to accomplish their goals and perhaps have more funds available for charitable purposes rather than for administrative expenses.

Comparison: Private foundations versus a named fund at Community Foundation of Burke County (CFBC)

Set-Up Procedures and Costs
Private foundations must incorporate and apply to the IRS for tax-exempt status and there are legal and accounting fees to establish a foundation. Meanwhile, CFBC procedures are immediate and there are no start-up fees. Currently, CFBC charges an annual administrative fee of 1%.  CFBC’s economies of scale and pooled endowment keep costs at a minimum.

Tax Treatment of Contributions
With a private foundation, current year donor tax benefits are limited to 30% of income for cash gifts and 20% of income for appreciated property gifts. At CFBC, current year donor tax benefits are 50% of income for cash gifts and 30% of income for appreciated property gifts.

Contributions of Appreciated Property
At CFBC, Federal and North Carolina income tax deduction for all appreciated property gifts may be taken at 100% of fair market value. With a private foundation, the Federal and North Carolina income tax deductions for appreciated property gifts are generally limited to a person's basis. (Please note: the ability to make gifts of publicly traded stock to private foundations and take a deduction based on the fair market value of the stock is an exception occasionally allowed by Congress. This rule has changed repeatedly over the last several years.)

Excise Taxes
At CFBC, there is NO tax on investment income, while at a private foundation, excise taxes are up to 2% of investment income annually.

Investment, Audit, Accounting and Tax Returns
With a private foundation, you must perform financial and administrative services yourself, or contract or hire staff to fulfill these functions. Plus, an annual 990-PF tax return is required. CFBC handles all financial and administrative management, files annual tax return and provides an annual independent audit.

Liability and Insurance
Directors and officer's liability insurance, employee bonding and office insurance must be separately purchased with a private foundation. CFBC automatically covers liability and office insurance policies.

Grant Payout Requirement
Private foundations are required to distribute 5% of their assets annually to avoid penalty taxes. There is no payout requirement with CFBC, so your fund can accumulate income for a sizable project or grant as you choose.

Grant Management
A private foundation must verify the charitable status of all recipient organizations. CFBC verifies charitable status of all recipient organizations, plus donors have access to the community foundation's strategic grantmaking services.

Privacy
Private foundations are required to file detailed tax returns on grants, investment fees, trustee fees, staff salaries, etc. These are public records and are compiled into grantseeker directories, internet files, and other widely distributed resources..

At CFBC, individual donors or grants can be kept private. If the donor wishes, the community foundation can serve as a buffer between the donor and grantseekers.

Call Caroline Avery, Executive Director of CFBC, for more information on alternatives to private foundations.

"Community Foundation of Burke County does not render legal, accounting or tax preparation advice.  Consult your tax and legal advisors about your specific situation."