Philanthropy

By Kanaly Staff

After enjoying a successful career and building a good deal of wealth, you may be looking to find a way to give back during your retirement. One excellent way to do this is through establishing a family foundation. A family foundation allows generations of your family to work together charitably making in-kind and financial donations to worthy causes of your choice. It’s also a terrific way to bridge the generational gap and to pass wisdom and values on to your heirs.

Which type of foundation is right for your family?

Texas Foundations can be created as one of two legal entities: a charitable trust or a charitable corporation. Here is an explanation of each.

Charitable Trust

The charitable trust agreement is more inflexible. The agreement makes changing the purposes and goals originally established in your foundation difficult. Choosing to establish a charitable trust would be best for your family if it is interested in carrying on its original intent in perpetuity. The disadvantage to this comes in when laws and the charitable environment change over time. Your foundation may find it difficult to respond to these as amendments usually require court approval.

Your Charitable Trust will require less documentation for establishment, and does not require trustee meetings or minutes. It also has a smaller governing body, even consisting of as little as one trustee. Consistent with its inflexibility, your trustees will be difficult to change and if you want to terminate the trust it will require court action. You will find distribution of your trust’s assets and the IRS notice similar to that of a nonprofit corporation.

Charitable Corporation

Setting up a Charitable Corporation will allow your foundation much more flexibility of corporate documents. Its articles of incorporation can be easily amended without court involvement as your needs arise. The problem that this may cause, however, is that your original intent may be changed by future generations.

If you choose to set up a charitable corporation, it will require a great deal more documentation. Its Articles of Incorporation must be filed with the Secretary of State, and it is public record. Bylaws will be required and you will need to hold an annual meeting of directors with minutes.

Your charitable corporation will need at least three directors and the corporate entity can only be used as an agent, not a director, so all liability will remain with your individual directors. It is also much easier to add or remove your directors.

Your charitable corporation will be much easier to terminate than a charitable trust, and distribution of its assets and the IRS notice is similar to that of a nonprofit corporation.

Define your Intent

Choosing the right type of foundation for your family will depend upon your wishes and goals for the future. In the work we do with our clients, we have established and managed numerous family foundations to help families achieve these goals. You may prefer the flexibility of the charitable corporation that will allow for easier changes and freedom of decision-making for future generations, or the more rigid structure of the charitable trust that helps keep your original intent intact may better suit your needs. Regardless, family foundations are a great vehicle for giving back.

You should understand in the beginning that family foundations can require a great deal of administrative work. Utilizing an objective fiduciary (a person or institution that takes the responsibility of acting on behalf of another person, and is bound by good faith and trust) can minimize this, and allow you to avoid family conflicts and political problems while being assured that the purpose and goals of your foundation or trust are reached consistently.