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Terminating Private Foundations

Terminating Private Foundations

 

If you are involved in a private foundation, and have found that the time and costs involved are greater than you expected, you might consider terminating your private foundation by transferring some or all of the assets to a Donor Advised Fund.

 

Administrative paperwork, expense, research on charitable organizations, and ongoing legal and financial due diligence are only some of the factors to consider when maintaining a private foundation. For the founder or family members the work can be drudgery and negatively affect their joy of giving. 

Over time, private foundations often struggle with issues such as:

  • The original purpose of the foundation no longer has the urgency it once did.
  • Financial and administrative factors make it difficult for the foundation to operate effectively.
  • The original founder may be slowing down, and the children or grandchildren may not share his/her passion.
  • Busy schedules and geographic dispersion make it increasingly difficult to provide the administrative attention.
  • The founder desires that his or her children focus on the family's philanthropy, not on the burden of foundation administration.

These considerations, along with the increased recognition of advantages of donor-advised fund as a family foundation alternative, have prompted families to terminate their private foundations and transfer assets to donor-advised funds. Some transfer their assets in a lump sum; others start with a minimum contribution of $10,000, and then add to their fund over time.

Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets as a qualified distribution to a public charity. Private Foundations considering a transfer should get help from an attorney with experience in handling this kind of transaction.

With appropriate planning, principals of the foundation may remain involved in grant making if that is their desire.  Teamed with the expertise of our local professional staff, they will be able to ensure that their intent, name and pattern of charitable giving are maintained in perpetuity if they wish.