Your client may enjoy overseeing a private family foundation, but private foundations have a number of financial and administrative disadvantages when compared to public charities. These drawbacks include greater investment restrictions, mandatory distribution and reporting responsibilities, fewer tax benefits and the sometimes-heavy burden of personally administering a private foundation.
Comparison of Greater Toledo Community Foundation versus a Private Foundation
|Compare||Greater Toledo Community Foundation||Private Foundation|
|Tax treatment of cash gifts||Deductible up to 50 percent of Adjusted Gross Income (AGI)||Deductible up to 30 percent of AGI |
|Tax treatment of gifts of appreciated publicly-traded |
|Full market value deduction up to 30 percent of AGI||Full market value deduction up to 20 percent of AGI |
|Tax treatment of closely-held stock or real estate||Full market value deduction up to 30 percent of AGI||Deduction limited to donor’s cost basis, up to 20 percent of AGI |
|Excess business |
|No restriction||Can hold no more than 20 percent of a business |
|Excise taxes||No excise taxes||Excise tax of 1-2 percent of net investment income annually |
|Required payout||No required payout. Can accumulate income toward a sizable project or grant. Has flexibility to hold low-yield property||Required to expend 5 percent of asset value annually, whether or not the Foundation’s investments earn that amount |
|Incorporation and tax |
|Automatically covered by Greater Toledo Community Foundation (GTCF)||Must create corporation and apply for tax exemption |
|Privacy||Individual donors or grants can be kept private. If donor wishes, GTCF can serve as a buffer between donor and grant-seekers, allowing donors to remain anonymous.||Foundation required to file detailed tax returns on grants, investment fees, trustee fees, staff salaries, etc. These are public records and are compiled into directories for grant-seekers. |
|Liability and insurance||Automatically covered by GTCF’s liability and office insurance policies||Any directors and officer’s liability insurance, employee bonding, and office|
insurance must be separately purchased
|Investment, accounting, audit and tax returns||GTCF handles all investments and accounting. GTCF files annual tax return and provides annual independent audit. ||Trustees must perform, contract or hire staff for these services.|
|General administration||GTCF handles all financial and administrative management||Trustees must perform, contract or hire staff for these services. |
|Grant administration including new |
Patriot Act requirements
|If donor wishes, GTCF can assist in establishing grant making guidelines and philanthropic goals, identifying potential recipients, investigating applicants, making grant payments and monitoring performance. ||Trustees must perform, contract or hire staff for these services.|
|Costs||There are no fees to establish a fund at GTCF; however, there is an annual administrative fee ranging from .40 to 1.45% based on fund type plus a bank/investment fee of .25%.||Recent figures show that private foundations of under $5 million had average costs of 6.27% of assets and the average administrative cost of private foundations was 1.4% of assets. |
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