Create a Private Foundation as Your Legacy and Its Benefits to You and Yours

Are you interested in furthering worthy causes, reducing taxes, and imparting to your own future generations your interests and work. Do so by forming a private foundation. This article summarizes some of the benefits of doing so.

A private foundation is a 501 (c) (3) organization (i.e., a charitable organization) that doesn't qualify under the tax code as a "public charity." Private foundations are subject to certain taxes that do not apply to public charities. The tax code limits the deductibility of gifts to private foundations in ways that do not apply to public charities. IRS publication 557 outlines the restrictions on private foundations.

A private foundation typically needs to an annual minimum of about $25,000 - from endowments, annual contributions or both - for making grants. If your estate has more than $5 million you can easily handle this.

*Private foundation tax breaks:

As at tax break, you can establish a flow-through foundation. It converts appreciated property into cash and then distributes the cash to public charities. But it doesn't build up an endowment. The benefit, here, is that you can contribute any highly-appreciated assets without selling them yourself which would result in significant capital gains taxes on you. Individuals may deduct cash donations to a private foundation up to 30 percent of their adjusted gross income (AGI) and appreciated property - at their fair market value - up to 20 percent of their AGI. All contributions specified in a will are fully deductible for estate tax purposes.

Your foundation can be a non-operating foundation making only grants to help fund the efforts of other organizations or individuals. The alternative is an operating foundation, which runs a facility or institution like a museum or research lab. Your foundation's purpose can be as broad as world hunger or as specific as you like.

Of course, private family foundations must operate according to tax law, including distributing at least 5 percent of assets each year and paying a 1-2 percent tax on investment income. However, as part of your overall estate plan, a private family foundation decreases the amount of taxable assets in your estate. You can make gifts to your foundation without affecting the annual gift tax exclusion or the gift tax credit, too.

*Control of your private foundation and family participation:

A major attraction of the private family foundation for high net worth individuals is the greater control it gives them compared to making a lump-sum donation to a public charity or to a less flexible charitable trust. While a trust instrument can be difficult to change, a private foundation incorporated as a nonprofit can adjust its mission over time.

With a private family foundation, you can involve your family - for generations - directly in the issues and activities that mean the most to you. They can receive salaries as trustees, directors or employees of the foundation if they legitimately serve in those roles and justify their salary.

But creating a foundation requires careful consideration and planning.


------

Shane Flait helps you with your financial legal, tax, and retirement goals.
Get his FREE report on Managing Your Retirement =>
http://www.easyretirementknowhow.com/FreeReportandSignUp.htm
Read his ebook: 'Wise Way to Financial Independence' =>
http://www.easyretirementknowhow.com/WiseWayGate.htm