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By Jason Ramage, CFP

“The people who gave the money to make Mister Rogers’ Neighborhood are the people of this station and other Public Television Stations and The Sears-Roebuck Foundation.”

If you grew up watching PBS children’s shows, these words might be buried deep in the recesses of your memory. This is likely the first time you heard of a private foundation. It’s fascinating that PBS followed the “explain it to me like I’m five” rule, so that even as a child you can begin to appreciate the good things donors can make happen in the world.

Today, a few organizations, like the Bill & Melinda Gates Foundation, are household names with billions in assets. Yet according to Foundation Source’s 2021 Report on Private Foundations, over 90% of private foundations operate in relative obscurity with less than $10 million in the bank. Charitable giving is growing in importance as baby boomers retire and make plans for their savings. Younger generations – who are expected to inherit over $30 trillion in the Great Wealth Transfer – may be more charitably inclined from the beginning and considering options for inherited wealth that’s not needed for their own retirement.

We have many vehicles and methods available to us to support important causes. When should you consider a private foundation (PF)?

Private Does Not Equal Privacy

Private foundations offer many benefits, but privacy is not one of them. If you are concerned about making charitable donations with some measure of privacy, a Donor Advised Fund (DAF) is likely the easiest solution. While both types of organizations must ensure gifts are made to qualified charities, a DAF takes on this accountability for all account holders. This allows your specific recommendations to be made anonymously.

In contrast, PFs must file Form 990-PF annually with the IRS. This form is 13 pages long and not the type of thing you bang out on TurboTax an hour before midnight. A PF must disclose contributions, charitable activities, directors, and compensation, among other details. Running a foundation is much like running a business – you need to create a plan, stay organized, keep records, and involve legal and accounting professionals from the beginning.

Squeezing Creative Juice for Charity

If your charitable ambitions lean more towards creative and entrepreneurial, you might be attracted to the flexibility a PF offers. Think about the ways in which you might support a food pantry:

  • Financial gifts, such as checks, Qualified Charitable Distributions from an IRA, and donations from a fund help pay for supplies, utilities, and building maintenance. 
  • In-kind donations, such as canned goods, replenish inventory and help the pantry conserve cash for other needs. 
  • Volunteering for shifts in the cafeteria or kitchen or talking with people who stop in for a meal. 
  • Managing the entire operation: Meal and inventory planning, soliciting and organizing donations, communicating with related non-profits, and anything else needed to keep the doors open must be organized by volunteers and paid staff.

This last need – management – is where foundations and other sources of sustained giving can be especially helpful. With most donations, the most “involved” you might be is assigning gifts to a specific campaign or need. A foundation can be directly involved in charitable operations. Remember that Form 990-PF that I warned you about? The reason for its complexity is foundations must substantiate their activities, especially when they are not simply giving money to qualified public charities.


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Sometimes It’s Good to Be a Control Freak

What DAFs offer in privacy they take back in control. If you use a DAF, you’ll notice that any donations you make are called “recommendations.” Technically, fund administrators have the final say on how assets are granted. This can be especially pertinent with estate planning. A successor custodian or charity should be named on your DAF account, yet if that person or organization is unable do this, the buck stops with fund administrators who will choose qualified charities to receive the balance of your account.

By establishing a PF, you retain a great deal of control. Your vision and goals will drive the target beneficiaries of gifts, which can last decades beyond your lifetime. The Carnegie Corporation – another name you might recognize from public television – is going strong over a century since Andrew Carnegie founded it in 1911.

Some foundations operate scholarship or grant programs. Others fill an unmet need in their community. Giving internationally is even possible with proper accountability. It’s not surprising that the visionary people who build for-profit companies carry that same vision into their charitable endeavors through foundations.

Operating vs. Non-Operating

The IRS consider all PFs either operating or non-operating. An operating foundation is hands-on doing charitable activities. This will obviously introduce more complexity, although it also allows for greater tax deductibility of contributions. A non-operating foundation is focused on making grants to operating charities. This may be easier to manage with a trade-off in lower eligibility of tax deductions.

This chart lays out some of the major points discussed above. Bear in mind, your financial plan could include many forms of giving depending on how the pros and cons best fit each situation.

Ramage private foundations

What’s a realistic amount of assets to start a foundation? I’ve seen figures cited from $500,000 to $10 million, depending on whether the source wanted to encourage or discourage the use of PFs. Even if you started on the low end, it’s safe to say you likely want to plan on reaching a few million in assets to make the time and expense worthwhile. This could include donations from other people, especially in the case of family foundations.

Connecting with legal and accounting professionals experienced with private foundations will be your best resource. To close out, here are a few helpful resources for further reading:

Life Cycle of a Private Foundation from IRS.gov

Private Foundation Programs & Services from Council on Foundations

What Is a Private Foundation? from Foundation Source

Locate a Community Foundation for local assistance

National Center for Family Philanthropy

Oh, and watch an old Mister Rogers Neighborhood for inspiration!

About the author: Jason Ramage

Jason Ramage, CFP®, is a Financial Advisor and Paraplanner for TouchPoint Wealth Partners in Cincinnati, Ohio, a Member Firm of Valmark Financial Group. He enjoys planning around equity compensation, entrepreneurship, and charitable causes. Jason can be reached at jason@touchpointwealthpartners.com.

This article is for informational purposes only and is not intended as legal, investment, or tax advice. Please consult with a professional concerning your personal situation.

Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 1-800-765-5201.

TouchPoint® Wealth Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


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