Many people who wish to contribute towards philanthropic work think about starting their own family foundation. Bill and Melinda Gates Foundation is one such well-known family foundation, which supports number of charitable causes.
Family foundations are private foundations which are funded by individuals or families. Apart from bringing glory and identification to the family name, these foundations also offer number of tax benefits for the family members.
What is a Family Foundation
Family foundations are privately owned organizations which support a charitable cause. The funds for charitable work come in the form of gifts from the foundation. Currently, there are about 44,000 family foundations in the US. These foundations contribute to about 40% of the foundation grants to non profit organizations.
Starting one's own family foundation allows you to contribute towards a noble cause. As you have the total control over the funds of the foundation, you can decide what cause to support.
By forming a family foundation, you can become eligible for tax exemption under section 501(c)(3) of IRS. Besides, you can also claim tax deduction on capital gains, if you are in possession of assets that have undergone appreciation.
How to Start a Family Foundation
Irrespective of your motive to start a family foundation, there are a certain steps that you must take. Given are a few guidelines on starting a foundation.
Establish an Area of Interest
It is important for the entire family to come to a consensus regarding where to invest foundation funds. All the family members must unanimously support a cause for which foundation money can be used.
If the control of the foundation is retained within the family, the family members can later make amendments, if a worthier cause comes up. Most importantly, the members should agree to the decline in family income due to foundation gift.
Set up a Trust/Corporation
Your private foundation can assume the nature of a trust or a corporation. If you are setting up a trust, you will need to appoint a trustee, who can act on behalf of foundation trust. The same responsibility is bestowed upon an executive director, when you set up a private corporation.
Trustee or executive director is a person who makes all the important decisions on the behalf of a trust. He decides how to allocate funds to the non charitable organization. Besides, he is also responsible for ensuring that the foundation pays the gift amount on time. He also handles the taxation part of the foundation.
Apart from a trustee, or an executive director, you will also need to appoint a committee of 3 to 5 members to run the administration of trust/corporation. These can be either family members or close associates of the family.
Fulfill IRS Requirements
Once you set up a foundation, you need to agree to IRS requirements, if you intend to reap tax benefits. To get tax exemption under 501(c)(3), the foundation must agree to gift 5% of their average net worth, every fiscal year.
The IRS procedure can be completed by visiting their official website and filling IRS Form-1023. The same procedure can be done offline, by visiting local IRS office.
Join a Foundation Database
Register your foundation with a foundation database such as Foundation Center. You can also start your own website, so as to spread awareness amongst the masses regarding your philanthropic work.
Starting a foundation is a good way to involve the younger members of a family in philanthropic work. Besides, it also ensures employment for future generations, should they decide to completely devote themselves to a social cause.