Another popular charitable estate planning tool is the Private Family Foundation. A Family Foundation serves as a great way to donate to charity, while maintaining control of your assets. It allows you to control investment/management of the funds, and decide who sits on the board of the foundation. Many people like family foundations because their children or grandchildren can receive salaries while working for the foundation and it serves as a great way to get your heirs involved in charity/community service.
Similar to other charitable planning tools, a Family Foundation provides immediate tax advantages. You can deduct the amount you donated from your adjusted gross income (AGI) by up to 30%. Appreciated assets donated to the foundation avoid capital gains taxes and allow you to take an income tax deduction of up to 20% of AGI. Furthermore, these deductions have a 5 year carry forward provision.
Family Foundations also provide for estate and gift tax benefits. Every dollar you donate to your Family Foundation is one less dollar that is included in your estate. You can then have your foundation fund the charities of your choice.
Two types of Family Foundations are operating and conduit foundations. In an operating foundation you do not make grants to other organizations, but you fund/partake in tax exempt activities, such as medical research. The purpose of a conduit foundation is usually grant making. Opening up a conduit foundation is a great way to get your family involved in the donating process.
It is important to recognize a few disadvantages with Family Foundations. There are initial time commitment and costs related to incorporating the foundation, defining the nature of the charity, and obtaining tax-exempt status. Family Foundations require proper recordkeeping of the grant making process, and must file proper annual reports with the IRS. Private foundations are required to distribute at least 5% of their net value annually.
Talk to Kolinsky Wealth Management to find out more about Private Family Foundations. There are multiple charitable planning vehicles and you should find the one that suits you and your families’ needs.
Presented by Steven Kolinsky Managing Member & Founder at Kolinsky Wealth Management