What is a Private Foundation ?

Private foundations are generally founded by an individual, a family or a group of individuals, and are organized either as a nonprofit corporation or as a charitable trust. You can appoint yourself, as well as other family members or friends, to sit on the foundation's governing board.

One common form of a private foundation is a family foundation. Families sometimes use a family foundation as a forum in which family members can work toward common goals, or as a way to instill the value of charitable giving in future generations of the family.

Another common option that families use to accomplish the goals of their family philanthropy is to establish a donor advised fund at a community foundation

Since a private foundation is a charitable organization, it is exempt from federal income tax on its income, although it must pay a 1-to-2 percent excise tax on its net investment income. The gifts you make to establish a new foundation or grow an existing foundation can afford you certain tax advantages; income, gift and estate tax deductions are available under the law.

Private foundations are governed by stricter legal and tax rules than public charities and often face difficult and highly technical compliance issues. My staff and I can assist you in navigating these complexities and helping your board members and family understand the rules, as well as file the annual federal and state tax forms.

There are three types of Private Foundations:

Private Endowed Foundations- the most common. Assets create a principal that is invested and income is paid out annually to a charity. Required by law to pay out annual grants and other "qualifying distributions" totaling a minimum of 5% of the fair market value of the assets. The calculation is tricky.
Pass-through Foundations - it distributes all of the contributions it receives, not just 5%. The pass-through option may be made or revoked on a year-to-year basis.
Private Operating Foundations - uses the bulk of its income to "actively" run a program or service - not just to give out grants. Examples include the operation of a museum, library, research facility or historic property. Some private operating foundations also choose to make some grants to other charitable organizations.

Online Resources

Council on Foundations
The Council on Foundations, a national membership association of grantmaking foundations and corporations, offers this helpful "Starting a Foundation" section.

National Center for Family Philanthropy
The Center focuses on matters of importance to families engaged in philanthropy and their effective giving. The Center has several useful publications and programs on starting and operating a private family foundation.