A surprising number of  individuals set up Private foundations and other philanthropic entities without considering if they are the best option to meet their charitable inclinations. Income and estate tax savings are not the only consideration.

  • A PRIVATE FOUNDATION IS THE CHOICE of those who want to maintain maximum control over their charitable dollars. Many wealthy families set up foundations that last for many years. But the income tax deduction is less favorable for a foundation when compared with a public charity, and donors face considerable paperwork and other time-consuming and costly overhead.
  • COMMUNITY FOUNDATIONS RECEIVE DONATIONS from individuals, businesses, private foundations and other charities and make grants to community charities. Typically falling into one of four different types, community foundations are exempt from excise taxes and administrative burdens and let the donor deduct the fair market value of appreciated property. But donors will not be able to exert as much control as with a private foundation.
  • A SUPPORTING ORGANIZATION FUNDS ONE OR MORE SPECIFIC CHARITIES, such as a hospital auxiliary or an alumni association. These entities escape the restrictive tax rules that apply to private foundations, can own an unlimited amount of closely held stock and offer the same tax deduction limits as public charities. Supporting organizations are not a good choice when the donor does not want to be involved in running the organization.
  • PROPRIETARY FUNDS ARE ESSENTIALLY CHARITABLE MUTAL FUNDS. The law treats them like public charities. Proprietary funds are convenient for a last minute donor who may or may not want grants to be made anonymously. Most funds are only set up to handle marketable securities, so the arrangement isn’t suitable for real estate or similar assets.

Read complete article at the Journal of Accountancy