Private foundation alternatives

Weighing the benefits of private and public charity

Establishing a private foundation is like having a child… giving birth is just the first step.

Running a successful, mission-driven foundation requires steadfast vision, strong leadership, and hard work. It also takes time. While the investment of time begins with the startup, it will continue for years to come. And of course, it takes money as well. Theoretically, any amount is possible. But practically, many underestimate the amount needed to operate efficiently, both in terms of the charitable asset and ongoing operating costs. Many private foundations are established without thorough assessment of all the costs involved and the alternatives available. Often prompted by year-end tax planning or the influence of peers, a quick decision can result in a costly and long-term responsibility.

Surprised by demands

In fact, after the first year or two of operations, some private foundation founders express mild regret, saying they didn’t anticipate the magnitude of demands on their time, energy, and resources. They wish that someone had helped them consider the costs, the benefits, and the options… before they signed up for the responsibilities of a private foundation.

For philanthropists considering options, as well as private foundation trustees interested in simpler solutions, practical alternatives are available through Placer Community Foundation.

Private foundation and donor advised fund

Many philanthropists choose to maintain their private foundations while establishing a donor advised fund at Placer Community Foundation. In doing so, they can earmark just a portion of their assets to suit a special interest.

Donor advised fund

Donor advised funds offer a simple, powerful, and highly personal approach to giving. While Placer Community Foundation retains the assets given in this way, donors—and even successive generations—can stay involved in recommending uses for the fund.

Supporting organization

By choosing a supporting organization, donors retain a great deal of control and involvement. Yet, they receive valuable local expertise, personalized service, and tax benefits through affiliation with the community foundation. Generally, it is possible for a private foundation with $5 million in assets, or the potential to reach $5 million in the future, to become a supporting organization of the Foundation.

Benefits of public charity

Besides easing the administrative and cost burdens of managing a private foundation, transferring assets to the Foundation permits the private foundation to take advantage of many aspects of our public charity status. Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets to a public charity. The two primary requirements for the termination of a private foundation are that the private foundation must distribute all of its net assets to one or more tax-exempt organizations and that each organization has been in existence for a continuous period of at least five years preceding the distribution. Placer Community Foundation fulfills both of these requirements. The donor advised fund option is relatively simple, while the supporting organization option requires careful consideration by both the donor and our board of directors.