Private family foundations allow you to create a lasting legacy that supports social causes you care about. You can develop foundations to sell businesses, donate large assets, or prepare for retirement. Private foundations are usually tax-exempt and are managed by wealth planners and trustees experienced in financial planning services. Here is how to set up and manage a private family foundation:
Define the Purpose
Private family foundations are philanthropic endeavors with unique purposes and courses. You can set up a foundation for charitable giving, helping veterans or the disabled, or supporting causes like cancer awareness and treatment. Developing a clear purpose and mission statement can help guide your foundation’s work. Define the philanthropic objectives and establish grantmaking guidelines for applicants.
Form An Entity
Once you have a clear purpose, seek financial planning services to help you establish a legal structure. You can form a nonprofit corporation, which involves filing articles of incorporation, choosing a name, and outlining the charitable purpose in clear language. Form the foundation as a trust or corporation under your state’s laws and apply for an employer identification number (EIN) and tax-exempt status. A tax-exempt status reduces your tax liabilities, allowing you to spend more on charitable works. You can also determine if you want the family foundation to continue after your lifespan.
Create Governing Documents
When you create a private foundation, create governing documents outlining how the foundation will be run. Determine the number of board members and their roles, terms, and decision-making. The board oversees the foundation’s activities and can comprise family members and financial experts. Establish policies to prevent conflict of interest between personal ambitions and the foundation’s operations. A team of financial advisors and planners can help you with compliance, recordkeeping, tax returns, and other requirements.
Fund the Foundation
Establishing a private foundation requires initial funding and ongoing contributions. Private foundations are usually funded by an individual, family, legal entity, or small list of contributors. Most foundations cannot actively seek donations from the public.
Determining the required initial funding involves financial planning, budgeting, and cash flow analysis. Wealth managers also evaluate savings, emergency funds, large purchase funding, and education and college funding. Some foundations are funded with assets from existing trusts, investment returns, and annual family donations.
Manage the Foundation
Foundations are often maintained by managing investments and grants. Work with leading planners to develop investment strategies for the foundation’s assets. Financial planners also help evaluate procedures for awarding grants, determining which charities and causes the foundation supports, and distributing funds. Follow IRS foundation guidelines, such as creating grants worth the minimum percentage required for each year’s investment assets. Good management also includes complying with tax regulations, completing state filings, holding annual board meetings, and documenting reports and decisions.
Involve Family
Private family foundations require engaging all parties involved in the decision-making process. You can hold meetings with trustees and boards to update the family on recent decisions and causes the foundation is pursuing. Involving family members also helps to enhance the foundation’s continuity and alignment with its goals.
Work with wealth enhancement firms to educate younger generations about the foundation’s philanthropic work. Leading planners and advisors offer regular updates and help break down complex legal and financial rules for your family. They also provide transparent reviews to assess the foundation’s performance and make adjustments based on your goals.
Get Professional Financial Planning Services Today
Starting a family foundation allows you to support various charitable causes and leave a legacy that remains several years after your passing. You can work with a financial planner to help you establish the right foundation and framework, reduce tax liability, and increase income. Contact a wealth enhancement firm today to learn more about private family foundations and other financial planning services.