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 securities |
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 holdings |
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 exemption |
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. |
Click here for complete discussion of creating a fund with Greater Toledo Community Foundation.
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