What is a Private Foundation, and is It the Right Fit for Your Family?
Foundations and Endowment professional: Roger Estrada
A private foundation is a tax-exempt §501(c)(3) charitable organization that doesn’t meet the IRS’s public support test for public charities. Unlike public charities, which rely on broad donor support, private foundations are typically funded by individuals, families, or businesses. They primarily focus on grantmaking rather than fundraising and are organized as charitable trusts or corporations.
Is a Private Foundation Right for Me?
Choosing a private foundation depends on factors like:
• Charitable Goals – Ideal for long-term giving.
• Control – Provides maximum control over charitable assets.
• Flexibility – Allows governance by family or external members.
• Legacy & Family Involvement – Helps establish philanthropic traditions.
• Duration – Can exist in perpetuity or for a fixed term.
• Tax Benefits – Deductions and estate planning advantages.
Other Charitable Giving Options
Alternatives include donating to public charities, setting up donor-advised funds, or establishing supporting organizations and charitable trusts.
Private Foundation Requirements
• Size & Costs – While no minimum is required, starting with $1-2 million is advisable due to operational costs.
• Administration – Must comply with IRS rules, including grant-making, tax fi lings, and investment regulations.
• Annual Distributions – Must distribute at least 5% of its assets annually for charitable purposes.
• Taxation – Exempt from income tax but subject to a 1.39% excise tax on net investment income.
Managing a Private Foundation
Governance typically falls to a board, often with investment professionals’ assistance. For expert guidance, Truist Foundations & Endowments Specialty Practice provides support in legal, tax, and investment matters.
