What are pros and cons of setting up a private foundation?

On Behalf of | Jun 8, 2020 | Estate Planning

Some people feel satisfied making regular donations to a cause. However, you may want to set up an operation that raises money for your cause and endures beyond your lifetime. Such goals are why some people create a private foundation. Like other forms of charitable giving, private foundations have both benefits and drawbacks.

Kiplinger explains that private foundations actually make up a lot of philanthropic giving in the United States. But private foundations also come with expenses and legal requirements. The Kiplinger article explains how these challenges as well as the benefits of a private foundation may manifest.

Giving you control

A private foundation provides you with a great deal of control over your giving. Since a private foundation is a non-profit organization, it can qualify for tax exempt status and allow you to provide funds to your preferred charities. You may also control how much money you want to donate. You can also decide where and how to invest assets.

Keep in mind that a private foundation must donate at least 5% of its assets every year. So if you do set up a foundation, make sure it can operate according to local and federal guidelines.

Providing a legacy

A private foundation can not only outlast your lifetime, but it can endure for longer than the lives of your children. In fact, private foundations may last for generations. The enduring nature of a private foundation enables you to set up an enduring legacy for your cause while also engaging members of your family and passing on values that you cherish.

Challenges of running a foundation

Setting up and maintaining a private foundation is not an easy venture. A founder typically has to contribute at least $250,000 to the foundation in addition to fees resulting from the startup. The foundation also needs a continual flow of money in order to pay its operational expenses and perform mandatory contributions.

Also, information about private foundations is public. Anything that goes wrong with a private foundation could negatively impact your reputation and those of anyone involved with the foundation. However, a private foundation with a stellar reputation may invite greater giving by donors and enhance your standing with the public.