Fedele and Murray, P.C., can also assist in another alternative to the charitable gifting approach which is to establish a private foundation. Any type of entity can be used to create a private foundation, such as a corporation, trust, etc. We have found that a trust is the best vehicle for establishing such a foundation.
In many ways, it is the simplest type of entity to create, needing nothing more than a governing trust instrument that sets forth the basic operating parameters of the foundation. There must, of course, be some general charitable purpose for the foundation. That stated purpose can be as broad or as narrow in scope as a client may want, so long as it is a charitable purpose, i.e., some educational, religious, scientific, or another general charitable goal. Once established, its board of trustees will control the operations of the foundation. The client establishing the foundation can serve on the board of trustees and appoint as many other trustees as might be appropriate.
Once the foundation is established, it is necessary to apply to the Internal Revenue Service (IRS) for recognition of the foundation’s exemption from federal income taxes. The firm routinely prepares the necessary application forms to be submitted to the IRS to obtain recognition of the charitable exemption of the foundation.
Limitations On A Private Foundation
With respect to any contribution to a private foundation, there are certain limits on the amount of one’s charitable deduction. Generally, the amount of a charitable deduction is limited to 30% of the donor’s “contribution base” for the applicable tax year. In general terms, the “contribution base” is one’s adjusted gross income. In the event that the value of the gifted assets exceeds the foregoing limitation, the “excess” charitable deduction may be carried forward for a period of five years and deducted in those future years (subject to the same percentage limitations).
Once a private foundation is established and its tax-exempt status granted, there are a number of operating rules that must be followed each year with respect to reporting to the IRS and to the Commonwealth, required minimum distributions of funds for charitable purposes each year, etc. Fedele and Murray, P.C., can assist with all these details of exactly how a private foundation must be managed.