Charitable funds at community foundations offer convenient alternative to private foundations
A growing number of philanthropists and their advisors are using charitable funds as a complement or alternative to private foundations.
Private foundations may consider transferring their foundation’s assets to such a fund to better carry out their foundation’s mission. Others may find the complexities of running a private foundation, the burden of administration or declining asset values warrant a charitable fund as an option. Whatever the motivation, charitable funds — including donor-advised funds — offer philanthropists the advantages of organizing their giving, maximizing flexibility, and cultivating the next generation.
How can a family’s charitable work be carried on through a charitable fund in conjunction with or as an alternative to a private foundation? A public charity, such as the Community Foundation for Southeast Michigan, maintains an aggregate of individual charitable funds. These include donor-advised funds where the fund founder and those designated by the founder may recommend grants, designated funds that benefit a specific nonprofit organization and field-of-interest funds where the founder can choose from a broad range of charitable purposes. A family may choose whether a fund bears the family’s name or is anonymous, which family members are advisors on a fund, if any, and whether the charitable purpose of the fund is defined to support a specific cause or nonprofit organization.
For individuals who are considering establishing a charitable fund at the Community Foundation as a complement or an alternative to a private foundation, the following are some questions for their consideration:
- Can you handle the day-to-day management and administration of the private foundation or is it more time-consuming than expected?
- Can you navigate the tax rules related to investments, distributions and “self-dealing” that apply to private foundations?
- Does your family have the ability to identify nonprofits aligned with your charitable mission or to evaluate an organization’s eligibility to receive grants?
- When considering leadership of a private foundation, are you concerned about a lack of continuity (or loss of interest) within the family, the lack of capacity to administer, or the challenge in finding board members?
- When it comes to grantmaking, does your family:
- Have multiple generations with distinct charitable interests?
- Want to make grants outside the family foundation’s mission?
- Desire anonymity?
- Does your family want to support larger initiatives in the region and leverage its dollars with other private foundations to increase impact?
- Are you concerned about the cost of administering the private foundation with declining asset values?
In many cases, where one or more of these factors is in play, it may make sense to establish a charitable fund to maximize flexibility and open up a host of resources to help the family achieve its philanthropic goals. When using the private foundation as a vehicle for giving becomes burdensome, the family may wish to terminate and dissolve the foundation and transfer its assets to a fund at the Community Foundation to reduce administrative headaches, avoid tax pitfalls and simplify their philanthropy.
Maximize your impact with the Community Foundation
Whether a charitable fund is used in tandem with or in lieu of a private foundation, the funds maintained by the Community Foundation benefit from the investment and administrative capabilities of a major institution. In addition, because a community foundation is a public charity, a fund at the Community Foundation pays no excise taxes, is exempt from private foundation reporting requirements and operates with minimal administrative costs. That leaves more money to carry out the family’s mission and philanthropy.
Dozens of private foundations have partnered with the Community Foundation to establish complementary funds or have transferred their assets to the Community Foundation on dissolution and termination of the private foundation. With assets of approximately $1.1B, the Community Foundation comprises more than 1,400 charitable funds established by individuals, families, businesses, and private foundations and has provided expertise in grantmaking and in our region’s changing community needs for over 35 years.
Please reach out any time to discuss your organization’s future or the future of your client’s private foundation. We’d be glad to help. You can contact us at email@example.com.
To learn more about strategic philanthropy for family businesses please contact Laura Brownfield, general counsel of the Community Foundation at (313)-961-6675 or firstname.lastname@example.org.