How FCF Can Help a Private Foundation

When your private foundation was created it was exhilarating, but now the process of managing the foundation’s affairs may not be as easy or rewarding as it once seemed. Over time, priorities change and family dynamics shift. The passage of time can impact private foundations in a variety of ways:

• Original purpose has become obsolete
• Government regulations increase
• Operating costs increase
• Annual 5% payout requirement becomes burdensome
• Administration becomes time-consuming
• Children move away or lose interest
• Investment costs increase

Using the Fayetteville Community Foundation’s services may solve many concerns for a private foundation:

• Private foundations must comply with stringent IRS regulations
• Gifts to private foundations have limited tax benefits
• Private foundations are taxed
• Information on private foundations is a matter of public record
• Private foundations require a significant commitment of time

When comparing the start-up costs, IRS restrictions, administrative burdens and tax benefits, many individuals find working with the Fayetteville Community Foundation to be a simple and cost-effective alternative. By transferring funds to the Fayetteville Community Foundation, you can maintain involvement and be assured that intelligent grantmaking will continue in the name of your foundation for generations to come. On the next page are some alternatives that make sense.

The Small Private Foundation

In an article, penned by Louis J. Hector, Esq., Partner of Steel, Hector & Davis, in Miami, Florida, he shares his thoughts on the administration of private foundations. In the article, Mr. Hector writes:

it must be admitted, the pleasures of the foundation have usually been somewhat soured by the morass of technicalities which surround private foundations. These revolve mostly around various restrictive provisions of the Internal Revenue Code. The restrictions were adopted over the years to prevent genuine abuses at a few foundations, but they have in the process become a formidable set of requirements and prohibitions applying to all foundations and they often necessitate expensive legal and accounting services.

After describing several other technicalities, Mr. Hector addresses the size in terms of assets that makes sense in the establishment of a private foundation. He concludes by saying:

How big is "big enough?" Some years ago, I thought the figure was $10 to $15 million; now I would put it closer to $50 million. Running a private foundation today is simply too big a job to justify the effort and expense over the long run for anything smaller.



Transfer Assets of an Existing Private Foundation into the Fayetteville Community Foundation by Creating a Donor Advised Fund or a Supporting Organization

Donor Advised Fund

A Donor Advised Fund enables you to play an active role in grantmaking while keeping administrative costs at a minimum and tax advantages at a maximum.

Establishing a Donor Advised Fund in your name or the name of someone you care about offers similar benefits as a private foundation but with less paperwork and lower costs. A feature many donors appreciate is the ability to name their children as successor advisors. This allows the family to remain involved just as if they had a private foundation.

One option is to donate all, or a substantial portion, of the foundation’s assets to a Donor Advised Fund. The Fayetteville Community Foundation assumes the entire operational burden, thus providing the greatest administrative relief.

A second option is to donate only the annual required 5% payout to a Donor Advised Fund. This is a “qualifying distribution” and satisfies the private foundation payout requirement. This option allows you to continue to control your foundation’s investment strategy since you continue to hold your foundation’s assets and distribute the 5% required.

With both options, you essentially make one grant per year and the funds can be disbursed in accordance with your recommendations. Unless you prefer grants to be anonymous, each award will be accompanied by a letter that conveys the values that your foundation represents.

Supporting Organizations

Supporting Organization status makes the most sense when donors want a higher degree of control, and when initial assets are $2 million or more.

Supporting Organizations are separate foundations that operate in conjunction with the Fayetteville Community Foundation. This kind of charitable affiliation with the Fayetteville Community Foundation gives the status and added tax benefits of a public charity without all the regulatory restrictions.

With a distinct identity and visibility in the community, Supporting Organizations allow a donor to play the most active role in philanthropy. Each Supporting Organization has its own board of directors, on which the donor’s family may serve. Its assets will be invested and managed by the Supporting Organization’s Board or by the Fayetteville Community Foundation Board of Trustees.

Donor Advised Fund or Supporting Organization, both give you lower administrative costs and better tax advantages.

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