Michigan Business Lawyer Blog

From time to time, I am asked about private foundations and how they can be used to further charitable goals. A private foundation is a separate legal entity that is recognized as a charitable organization by the Internal Revenue Service. The foundation is created for charitable purposes specified by the donors (example: grants for cancer research, scholarships for the needy, support of religious goals).

There are a number of benefits to setting up a private foundation for charitable purposes. These benefits include control of your money, flexibility in making distributions, potential for your family to have involvement with the foundation, continuity of your philanthropic activities, and possible tax advantages.

Control. The donors maintain control over their charitable giving by specifying the purposes of the foundation and then making grants consistent with its charitable purposes. For example, the foundation may be established to advance medical treatment for the poor. Beneficiaries of such grants are then determined by the foundation's Board of Directors, which would include the donors and their family. The Board of Directors is also responsible for investing the foundation's assets.

Flexibility. A foundation provides flexibility in making distributions since gifts are made in accordance with its charitable objectives rather than pre-selecting named charities which may not be in favor or in existence at the time of death. When the foundation receives its funds, the Board of Directors would then determine which recipients qualify to receive a distribution.

Family Involvement. Many clients find it important to encourage family involvement in their charitable goals. With a foundation, family members could serve on the Board of Directors. The family participates in implementing the charitable objectives and continues the family's role in the community. Family members may even receive compensation for their services.

Continuity. By establishing a foundation, the donors' charitable goals continue. The donors' name is associated with the foundation's charitable purposes in perpetuity.

My next post on this subject will deal with some of the tax advantages private foundations offer.