“Wealth is not new. Neither is charity. But the idea of using private
wealth imaginatively, constructively, and systematically to attack
the fundamental problems of mankind is new.” John Gardner
Harvard University is the oldest institution of higher learning in the United States. The university was founded in 1636 by vote of the Great and General Court of the Massachusetts Bay Colony. It was named for its first donor, the Reverend John Harvard, who left his personal library and half of his estate to the University upon his death.
Charitable giving has been a part of the American landscape since the nation’s founding. Such giving supports many social, educational, scientific, political, and medical causes. Much of the monies used to fund the above-referenced causes come from private family foundations or individuals donors, like Rev. Harvard.
Private family foundations have varied and far-ranging purposes. According to the Council of Foundations, a private family foundation is a charitable organization. The funds to begin the foundation’s operations usually are provided by one single family. The foundations themselves are run by family members who serve as trustees or directors of the foundation on a voluntary basis. Assets range from few thousand dollars to more than $1 billion.
Not all private foundations are the same.
There are two main types of family foundations: the private operating foundation and the private non-operating foundation. The difference between the two is the function the foundation provides. Private operating foundations directly engage in charitable work by conducting charitable programs or services. Private non-operating foundations, on the other hand, do not conduct charitable programs or services. Instead they invest the charitable funds by making grants to other charities. Two examples of private operating foundations are the Bill and Melinda Gates Foundation and the Make-A-Wish Foundation.
Benefits of family foundations
There are many benefits to establishing a family foundation. Among its chief one is leaving a personal and family legacy consistent with the founder’s ideals. A family foundation is also a family affair – including the whole family in charitable giving and philanthropic work. The reward for the family is helping advance a cause and receiving tax deductions and other benefits because of their charitable giving.
Other advantages of establishing family foundations include:
- Effective and consistent manner to give and direct the philanthropic activities of the family;
- Ability to maintain control of foundation’s mission or purpose; and
- Tax benefits and assistance with estate tax reduction.
A family foundation may not work if the founder is unable to make the initial time commitment and investment to fund the foundation. A family foundation is a business, but not for profit. Record-keeping and limiting activities to the stated purpose of the foundation are continual requirements. Improper use of charitable funds for personal reasons, non-foundation travel and entertainment, self-dealing is prohibited. Offering compensation to family members, granting loans, selling or leasing charitable property are generally prohibited.
Additional information
The Internal Revenue Service (IRS) is a good source of general information on the different types of tax-exempt organizations as provided by Section 501(c) of the Tax Code.