Americans are very charitable people; private philanthropy is growing at approximately 29 percent each year. Millions of dollars are given for human and environmental needs, medical research and facilities, and scholarships and endowments for education.

Benefits of a Private Family Foundation

Family

The private family foundation is an excellent way for a family to take part in the “giving back” of the fortune they are privileged to enjoy. It is an important recommendation I have made to clients for many reasons over the years. Allow me to share with you some excellent reasons for establishing a family foundation.

Although there are some limitations in the revenue code to the amount of income tax that is avoidable by charitable contributions, most contributions to a private foundation are income tax deductible and an excellent way to avoid substantial estate tax. However, in my experience in over 50 years of advising people on their personal finances, foundation establishment is not generally tax-motivated. As the table shows, charitable intent is the strongest motivation.

Charitable Trust vs. Charitable Corporation

A charitable foundation can be created as a charitable trust or a charitable corporation. The charitable trust is difficult to change. This is good for the integrity of the donor’s intent; however, it is difficult to update as laws and the charitable environment change. A charitable corporation provides for greater flexibility of corporate documents, but it is much easier for future generations to alter the donor’s original intent.

Creation of a Family Foundation

Individual family members can create the foundation, either during their lifetime or by testamentary disposition under their last will and testament. Contributions to the foundation can be made during the donor’s lifetime, or added to under a will.

The donor and the family may become trustees as the family matures. The foundation is managed directly by the trustees or they may utilize the services of a corporate fiduciary (a trust company or financial institution providing total fiduciary services).

Since the foundation is normally a perpetual entity, it outlasts the lives of all the people the donor knows. It is important that the foundation have regulatory oversight to ensure the donor’s intent is carried out and the foundation serves its charitable intent.

Very substantial foundations have found it beneficial to use a trust company to provide the administrative functions. These may include services such as acting as trustee or co-trustee, custody and safekeeping, investment advisory and management, government reporting and tax preparation, procedures to ensure compliance with all state and national requirements, preparation of and calling for trustees’ or directors’ meetings, or grants management.

Management of a Family Foundation

In addition to satisfying the desire to “give back” by establishing a family foundation, the family benefits from the ongoing service to the foundation. The family learns more about the needs of the community at large through the grant requests and disbursements than would otherwise be available to the average family or siblings.

The family foundation is a win-win-win situation. The family benefits by giving back while learning more about and satisfying community needs. The charity benefits by receiving funding for worthwhile causes. Society benefits through a lessening of government taxation requirements.

All of us should see the family foundation as a conduit for accomplishing many goals and satisfying much societal need without government.

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.