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If you have any questions or concerns, please use the contact information provided in this email as this inbox is not monitored for replies.
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Designing Your Family’s Philanthropy: DAFs, Private Foundations, and Supporting Organizations
A “school of virtue” – that’s how entrepreneur and philanthropist Frank Hanna describes the role that philanthropy can play in a family that collaborates in charitable giving. If you’ll permit us to stick with the school metaphor, this white paper focuses on designs for building the campus on which your family’s teaching and learning can take place.
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Specifically, we will start by briefly describing three different “school campus” designs:
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- Donor advised funds,
- Private foundations, and
- Supporting organizations.
Then, we will compare these designs on the basis of three criteria:
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- Deductibility,
- Complexity, and
- Control.
Finally, we will consider a few of the many reasons why a family might choose one design over another.
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Potential Designs for your “School Campus”
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What is a Donor Advised Fund (“DAF”)?
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A DAF is a charitable giving account established at a DAF sponsor (which has to be a public charity). The DAF itself is not a standalone charitable organization; the DAF sponsor (described below) is the standalone charitable organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code (“Code”) and responsible for ongoing administration and compliance. Learn more about Donor Advised Funds.
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What is a Private Foundation (“PF”)?
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A PF is a standalone charitable organization (typically, a corporation or charitable trust; depending on your state, perhaps a limited liability company) whose exemption from federal income tax under Section 501(c)(3) of the Code must be recognized by the IRS. There are different types of PFs; for our purposes, the discussion that follows will focus exclusively on what are known as private non-operating (i.e., grant-making) foundations. Find out which type of Private Foundation (“PF”) is right for you.
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3. Supporting Organizations
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What is a Supporting Organization (“SO”)?
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A SO is a separate charitable organization (typically, a corporation or charitable trust; depending on your state, perhaps a limited liability company) whose exemption from federal income tax under Section 501(c)(3) of the Code must be recognized by the IRS. There are three different types of SOs; for our purposes, the discussion that follows will focus exclusively on what are called type I SOs, which are “operated, supervised, or controlled” by one or more public charities. Ready to Learn More? Continue Reading about Learn more about.
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Which campus design is best to house your “school of virtue”? For many, the DAF can be a great way to start because of its ease, but that won’t necessarily be the right answer for your family. Each situation must be evaluated separately.
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For example, if you wish to contribute some of your operating business to be held by your charity for ongoing cash flow, neither a DAF nor a PF will work due to certain applicable tax rules, so you may want to form a type I SO.
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If you want to contribute highly-appreciated real estate that has zero basis after years of depreciation before a sale, a PF may not make sense since you won’t get a deduction. But if you don’t want others overseeing your philanthropy in any way and only plan to contribute cash and publicly-traded stock, a PF may be the way to go.
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If you want to make periodic contributions of cash and publicly-traded securities and don’t want to complicate your life with additional board meetings and administration, the DAF may be the right fit.
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At most schools, campuses change over time, and the same can be true for your philanthropic design. A structure may perfectly fit your needs during one season of your family’s life; then, over time, your needs or desires may change, and another structure (or multiple structures used concurrently, such as a DAF along with a PF or type I SO) may better serve your family’s philanthropic goals.
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Our thanks to Brown & Streza LLP
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About Brown & Streza LLP
Brown and Streza LLP is a law firm providing integrated legal services in tax, estate, trust, real estate, business, business succession planning, and charitable planning, including representing non-profits and religious organizations. Located in Orange County, California, we serve families, businesses, entrepreneurs, philanthropists, and charitable organizations, focusing on helping closely-held businesses and their owners achieve their goals.
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Upcoming Events
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August 24: 2023 Survey Results, Whittier Trust, Virtual
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September 11-12: University of Cincinnati Annual Gala, Cincinnati, OH
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September 12: USI, “Protecting The Wealth Of Family Businesses In A Volatile Tax Environment”, Virtual
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September 13: Brown and Streza Webcast, "Philanthropic Strategies for Successful Families", Virtual
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Sign-Up For New Podcast: "Voice of Family Business on Capitol Hill" with host Pat Soldano.
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Join our growing family of podcast listeners by clicking on the links below to our new podcast, "The Voice of Family Business on Capitol," where each episode delves into the major issues facing family businesses and family business centers today. Subscribe by clicking on these links, or wherever you get your podcasts.
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We hope you’ve enjoyed this article. While you’re here, we have a small favor to ask…
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As we prepare for what promises to be a pivotal year for America, we’re asking you to consider becoming a supporter.
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The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That’s why Policy and Taxation Group is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill.
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About Policy and Taxation Group
Policy and Taxation Group is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.
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Have questions or would like more information about becoming a Supporter or donating? Please contact John Marino at [email protected].
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Policy and Taxation Group Strategic Partner
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