Private Charitable Foundations

Philanthropic taxpayers sometimes wish to have more flexibility in their charitable giving without sacrificing the federal income tax benefits of annual giving. This can be accomplished by the taxpayer establishing his or her own private charitable foundation to which they can make donations of property and money and later decide the charitable recipient and purpose to which it will be dedicated. This can be done by setting up a charitable foundation that qualifies as a charitable organization under Section 501(c)(3) of the Internal Revenue Code. The individual will receive an income tax deduction for the fair market value of assets contributed to the foundation, within certain limits. There is often an advantage to transferring appreciated assets to a charitable foundation since it results in a deduction for the full value of the appreciated asset, within certain limits, and it avoids the payment of capital gains tax on the sale of the asset. The foundation can survive beyond the death of it’s founder and can be the beneficiary of his estate, thus reducing or eliminating federal estate tax liability.

Often charitable foundations are established by a client during life for the primary purpose of receiving all or part of the client’s estate upon death. This device is known as a “stand-by charitable foundation”. This device affords a client an income tax deduction for lifetime donations, an estate tax deduction for testamentary donations and enhanced control of the use of donated funds, even after death. A private charitable foundation which is established for the purposes of accepting testamentary transfers from the estate of the taxpayer is sometimes referred to as a “stand-by foundation” by estate planning professionals. taxpayers often make substantial lifetime gifts to their stand-by foundation and also make that foundation a beneficiary of their last will and testament. By doing this taxpayers will receive substantial income tax benefits during life, substantial estate tax deductions for their estate and more control on the way their charitable gifts are used both before and after their deaths.