Benefits of a Community Foundation over a Private Foundation
The costs of establishing and running a Private Foundation are such that, in normal circumstances, assets of as much as $5 million are needed before the Private Foundation becomes a cost effective alternative to a Donor Advised Fund.
A Donor Advised Fund provides all the functionality of a Private Foundation, with many additional benefits. A Community Foundation is the aggregation of many funds, providing centralized, cost effective management of all those funds while allowing donors to use the funds as if they were individual private foundations.
1. Greater tax benefits
- Larger income tax deduction
- Maximum donation is at 50% of adjusted gross income, Private Foundation is 30%
- No excise tax and associated administrative costs
- No tax returns on individual funds.
2. Administration benefits
- Fund can be set up in 30 minutes. No requirements to apply for 501 (c) (3)
- Funds aggregated with consolidated investment management
- No legal fees to establish fund – single contract with the Community Foundation
- Community Foundation has greater knowledge of community affairs
- Option to aggregate or handle as a separate fund
- No minimum distribution requirement.
3. Benefits for Private Foundations
- Community Foundations frequently receive contributions from Private Foundations
- Contributions from a Private Foundation are qualifying contributions to satisfy their minimum distribution requirements.
- Grants to Community Foundations are not "taxable" expenditures and not subject to expenditure responsibility requirements. Thus, a Private Foundation may establish an advised fund and meet its distribution requirements while enjoying the advantages of an advised fund.
- Community Foundations can process grant applications and conduct on-site visits for Private Foundations.
4. Benefits for Trusts etc.
- A separate trust or corporation can be considered part of a Community Foundation if it qualifies as a "Component Fund".
- No other type of charitable organization has this advantage.
- There is no requirement to set up a "supporting organization" status through the IRS.
- There is no requirement to prepare separate tax returns, even though legally the trust/corporation is a separate legal entity.
Example:
Donor establishes irrevocable charitable trust with a bank to benefit a charity. If the trust instrument submits itself to the governing document of the Community Foundation (articles of organization or bylaws) and the Community Foundation accepts the bank as a trustee – the trust can qualify as a component fund.
The Community Foundation can assist the charity, donor and bank by avoiding the administrative costs of a separate supporting organization.
These regulations provide opportunities for banks to relieve themselves of the tax and administrative burdens of administering private foundations while they retain the assets in their trust departments.
Click here to see a table of the Foundation Option Comparisons
Transferring a Private Foundation's Assets to ECCF
To transfer the assets of a Private Foundation to ECCF may be done very simply:
- Start a Donor Advised Fund at ECCF with the same distribution criteria as the Private Foundation. Link to Starting a Fund
- Select an advisory committee that will carry out the grant review processes, previously carried out by the Board of the Private Foundation
- Transfer the assets of the Private Foundation to the Donor Advised Fund
- At the end of the fiscal year of the Private Foundation, submit a final 990 to the IRS, informing them that the Private Foundation has ceased operation with zero assets.
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