Community Foundation vs. Private Foundation
If you or your client are thinking about establishing a private foundation, consider a Donor Advised Fund at The Community Foundation Martin – St. Lucie (TCFMSL) . It is an easy, less expensive alternative to a private foundation. Advantages include greater tax benefits , fewer administrative requirements, no minimum annual required payout, and the potential for anonymity, as well as grantmaking assistance from our professional staff. With a donor advised fund, we handle the administrative, accounting, legal, and reporting requirements so your clients can focus on giving back. This comparison chart may help you determine which makes better sense for you or your client.
| PRIVATE FOUNDATION | MARTIN COUNTY COMMUNITY FOUNDATION DONOR ADVISED FUND | |
|---|---|---|
| Start-up Cost | Legal and accounting incorporation costs | None |
| Ease of Establishment | Formation of corporation or trust required; Must apply for IRS tax exempt status (IRS may take six months or longer to process). | One signed document (Fund Agreement); Automatically covered by the Community Foundation’s tax exempt status |
| Recommended Size | Varies – $10 million recommended to justify operating expenses. (Generally, private foundations of under $1 million have average costs of 4.8% of assets and those of $1-10 million have average costs of 3% of assets.) | $10,000 minimum |
| Time Frame | Generally 2-3 months depending on the IRS turnaround time | Immediate – within 24 hours |
| Tax Status | 501 (c)(3) private foundation | The Community Foundation is a 501 (c)(3) and 509(a)(1) public charity. |
| Excise Tax on Investment Income | Up to 2% – various taxes imposed if payout requirement is not met, or if engaging in certain prohibited transactions. | None |
| Separate Annual IRS Tax Return Required | Yes | No |
| Tax Treatment of Cash Gifts | Up to 30% AGI | Up to 50% of AGI |
| Tax Treatment of Publicly Traded Securities | FMV of up to 20% AGI | FMV of up to 30% AGI |
| Tax Treatment of Real Estate & Closely Held Stock | Limited to cost basis of FMV or up to 20% of AGI, whichever is lower | FMV of up to 30% AGI |
| Administrative Services | Responsible for accounting, all record keeping, tax returns, grant programs and costs thereof. | All services are covered by low annual fee, most often 1% of FMV of fund assets. |
| Investment Management | Responsibility of trustees, professional advisors and hired staff – Must divest closely held stock within 5 years or investment will be taxed | Professional investment management and oversight follows an Investment Policy |
| Grant Support | Trustees or hired staff operate grant programs | If donor wishes and dependent on fund size, the Community Foundation staff will help to identify, assess, investigate, distribute and monitor grants. |
| Liability and Insurance | Any directors’ and officers’ liability insurance, employee bonding, and office insurance must be purchased separately. | Automatically covered by Community Foundation’s liability and office insurance policies. |
| Payout Requirements | Required annual payout of at least 5% of assets | None |
| Donor Involvement | Donor appoints board, which controls investments and grant-making | Follows the Community Foundation fund agreement as set up by the donor to meet their customized needs. |
| Donor Scope of Responsibility | Legal accountability | Advisory |
| Possibility of Family Involvement | Yes | Yes |
| Anonymity | Donors are named publicly on the private foundation’s tax return. | Donors may remain anonymous if they choose to do so. |
| Primary Advantages | Control, independence | Deductibility, nonprofit knowledge, flexibility, permanence, simplicity |
[1] A donor advised fund is just one type of fund offered by the Community Foundation. We would welcome the opportunity to meet with you and your client to be sure we structure their fund to best meet their philanthropic goals.
[2] The Community Foundation always encourages clients to discuss deductibility with their financial advisor.
Questions?
Please call Elizabeth A. Barbella, President & CEO, at (772) 288-3795.
