When and How to Establish a Private Foundation

A private foundation may be an appropriate option if you want to make a lasting impact on a specific cause, involve your family or a small group of individuals in your philanthropy, and enjoy greater control and decision-making power over your activities.

However, it’s important to carefully consider the responsibilities and requirements associated with establishing and running a private foundation.

When would I need a private foundation?

You may consider establishing a private foundation if:

1. You have a passion for a specific cause or issue and want to make a lasting impact.
2. You want to involve your family or a small group of individuals in your philanthropic activities.
3. You want to pool your resources and leverage your influence to support causes that align with your values and beliefs.
4. You want to create a legacy by supporting causes and organizations that will continue your work long after you are gone.
5. You want greater control and decision-making power over your philanthropic activities, including the selection and support of specific organizations and initiatives.
6. You have a significant amount of financial resources and want to utilize these resources in a tax-efficient manner.
7. You want to support innovative solutions to social and environmental problems that might not be possible through other types of philanthropic vehicles.

How to establish a private foundation.

Here are the steps to establish a private foundation.

1. Identify your philanthropic goals and objectives: Determine the cause or issue you want to support, and determine your specific goals and objectives for your philanthropic activities.
2. Choose a name for your foundation: Choose a name for your foundation that accurately reflects your goals and mission.
3. Obtain tax-exempt status: Apply for tax-exempt status from the Internal Revenue Service (IRS) by filing Form 1023 or 1023-EZ. You will need to demonstrate that your foundation is organized and operated exclusively for charitable purposes.
4. Create a governing document: Draft the articles of incorporation and bylaws for your foundation, which will set forth its purpose, governance structure, and rules for operation.
5. Establish a board of directors: Appoint a board of directors to oversee the operations of your foundation and to make decisions about its activities.
6. Fund your foundation: Make an initial contribution to your foundation, which will serve as the basis for its operations.
7. Develop and implement policies: Develop policies and procedures for your foundation, including those for grantmaking, investment, and reporting.
8. Begin your philanthropic activities: Begin your philanthropic activities, including making grants, supporting organizations, and pursuing your specific goals and objectives.
9. Comply with ongoing reporting requirements: File an annual tax return (Form 990) with the IRS and comply with any other ongoing reporting and regulatory requirements.

In summary, establishing a private foundation involves identifying your philanthropic goals and objectives, obtaining tax-exempt status, creating a governing document, funding your foundation, and complying with ongoing reporting requirements. With careful planning and effective management, a private foundation can be an effective tool for making a lasting impact on the causes and issues you care about.

We can help you with the planning phases of establishing a foundation. Give us a call and let’s work together to help you meet your goals.

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