Private Foundations: Making a Deep Impact

Tab 1

Spring 2013

Imagine a charitable giving approach that can assist with your goals of giving to meaningful causes while potentially keeping maximum control and flexibility over gifts, and involving your family for generations to come.


“Private foundations can enable clients to be very purposeful about their philanthropy,” says Mike Penfield, Charitable Services Group Managing Director for The Private Client Reserve. “Rather than just give money away, they can allow clients to donate to philanthropies they believe will do the most good.”


U.S. Bank cannot provide tax or legal advice, or draft legal documents, but here Penfield shares his insights on the potential benefits of private foundations. He also discusses other charitable giving vehicles that you may want to discuss with your tax and legal advisors to see if they are appropriate for you.

Mike Penfield, Charitable Services Group Managing Director for The Private Client Reserve; photo by Susan Seubert


​Why might a client choose to create a private foundation?


Many of our clients who start private foundations have had great success with their private businesses and now want to run a philanthropic business. Similar principles from the private business sector apply to private foundations. For example, some clients who start private foundations want to donate to the most efficient, cost-effective philanthropies.

Tab 2

Spring 2013

For many clients who start private foundations, family relationships are incredibly important. They want to involve future generations and tie their family identity to philanthropy.


But perhaps the greatest benefit of private foundations is the enormous impact they can have on communities. The private foundations that we service often receive letters that say, “You are the catalyst that changed my life. I used your scholarship to go to college, and my life was enhanced as a result.


How can The Private Client Reserve assist with the creation and management of private foundations?


Working with The Private Client Reserve may help remove the complexity involved with creating a private foundation. We can work with your tax and legal advisors. We can also provide the day-to-day management for the foundation so clients can concentrate on what they are passionate about: helping others. Because of our services, and the economical way we provide them, we can

help make the experience of running a private foundation simple.


For example, we can set up a “virtual” office so a client’s private foundation does not have to seek expensive office space and staff. That starts with creating a website for the private foundation, complete with details about the client’s family, the foundation’s philanthropic mission, grant and scholarship request forms, and contact information.


A Guide to Charitable Giving Vehicles


Why might clients instead opt for donor-advised funds?


Private foundations require a mandatory minimum payout and face the perception that they are complicated to administer. That is why some donors consider donor-advised funds as an alternative. Donor-advised funds are fairly flexible, simple and inexpensive to set up. Typically, they require less money to set up than private foundations — $25,000 versus $2 million or $3 million.

Tab 3

Spring 2013

But donor-advised funds are not as tied to family identity as private foundations. Say you set up a donor-advised fund at a community foundation. That community foundation may let it go on for your lifetime and your children’s lifetime. But typically after your children are deceased, those funds are wrapped up into the community foundation. In addition, the donor cannot control the investment decisions or payout decisions; they can only suggest them. Private foundations, on the other hand, can go on in perpetuity and allow future generations of your family to be involved.


Also, some charities that administer donor-advised funds, such as community foundations, have internal policies that require an annual distribution even though it is not a statutory requirement.


Why might clients opt for charitable trusts?


If a client wants to support one organization, say a university or a hospital, then a charitable trust may make sense. A client might choose a charitable lead trust as part of his or her estate-planning strategy to do some generation skipping. This may achieve tax benefits while moving assets to future generations.

Charitable remainder trusts can be beneficial forclients who are not comfortable with giving assets outright because the income goes to the beneficiaries and the assets eventually

go to the philanthropy. For example, a client with a high concentration of stock in his or her estate could put some of that stock into a charitable remainder trust that would pay an income to the client each year. Then after a period of time, typically at death, those assets would be given to a nonprofit organization or even the client’s private foundation. Keep in mind that charitable remainder trusts are irrevocable, so they can’t be canceled once they are in place.


Why might clients choose one-time donations over private foundations?


It’s all about simplicity. A client knows he or she wants to leave a specific amount of funds to a certain organization and has the assets to do it. The nonprofit organization knows it has the funds and can plan for them.


But we hear from many of our clients that while they are very passionate about a certain nonprofit organization, they would rather have the organization work with their private foundation to seek grants each year.


Private foundations can create discipline for nonprofits through the grant request process. Clients may be reassured to know why the nonprofit needs the funds, how the nonprofit will use them and what the nonprofit has achieved with past funds.


Please see important information below. 

Wealth Transfer