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Transferring a Private Foundation

If your clients have their own private foundation, they may be interested in learning the benefits of transferring it to a fund at The Denver Foundation. Some people become overwhelmed with the management and fees associated with their foundation, and need a simpler solution.

There are two options to consider: a donor-advised fund or a supporting organization. Each approach allows your client to remain involved in grantmaking, if that is their desire. At the same time, they will be able to ensure that their intent, name, and pattern of charitable giving are maintained—in perpetuity if they wish.

This chart [PDF] offers a comparison of the benefits of a private foundation with a donor-advised fund and other giving vehicles.

Here are ten practical reasons why it might make sense to transfer the assets of a private foundation to a charitable fund at The Denver Foundation:

  1. A fund is easy and inexpensive to establish. A private foundation requires a donor to create a new organization, apply for tax-exempt status, pay filing fees, and incur legal and accounting expenses.
  2. A gift of cash to a charitable fund allows a deduction of up to 50% of a donor's Adjusted Gross Income (AGI). A gift of cash to a private foundation allows a donor to deduct up to 30% of AGI.
  3. By creating a charitable fund, a donor may deduct gifts of closely held long-term appreciated stock at its fair market value, up to 30% of AGI. If the same gift is given to a private foundation, deductibility may be limited to its cost basis up to 20% of AGI.
  4. No tax is imposed on the investment income of a charitable fund because it is a component of a public charity. A private foundation pays up to 2% federal excise tax on its investment income and net realized capital gain.
  5. A community foundation donor may remain anonymous. A private foundation must make available to the public the name and address of any substantial contributor.
  6. There are no minimum distribution requirements for a charitable fund at a community foundation. A private foundation must annually distribute at least 5% of its net investment assets, regardless of whether the amount is actually earned.
  7. There are fewer restrictions on a charitable fund. For private foundations, however, there are strict regulations regarding self-dealing between the foundation and those who manage, control, or contribute to it and persons or corporations closely related to them. For example, a private foundation, along with its donor and other "disqualified persons" (including members of the board and staff), may not hold more than 20% of a related corporation's voting stock.
  8. There are fewer investment restrictions on a community foundation's funds. A private foundation may not make certain types of investments. For example, a community foundation may hold more than a 20% ownership in a particular corporation, but private foundations may not.
  9. There are fewer IRS reporting requirements on community foundation grants and funds, and requirements that do exist are handled by the foundation's staff at no extra charge to individual donors.
  10. Charitable gifts to a community foundation fund are almost always considered "public support," thus helping the recipient charity retain its public charity status. A private foundation grant is usually not considered "public support" in its entirety and, thus, may not be as helpful to the recipient charity in retaining its public charity status.

The Philanthropic Services Group is available to help you and your clients discuss and consider these options. Call us at 303.300.1790.