C. Daniel Yates, J.D., is a partner in the Estate and Wealth Transfer Planning Group of Bose McKinney & Evans LLP. He can be reached at firstname.lastname@example.org.
CICF has proven a valuable resource for several of my clients with private foundations. The philanthropic services provided by CICF to family and other private foundations are important resources for the directors or trustees of such private foundations to consider. The following examples represent synergistic opportunities for four of my private foundation clients to work together with CICF.
Use of Companion Fund for Philanthropic Services:
On occasion, it has been appropriate for an existing private foundation client to open a companion Donor Advised Fund (DAF) with CICF in order to benefit from the expertise that CICF staff and services can provide to private foundations. By establishing a DAF, a private foundation can benefit from the expertise of CICF and, in effect, have CICF’s staff as its staff. The philanthropic services provided by CICF are significant and can be tailored to meet the needs of a private foundation and include: providing background information on public charities of interest; providing the names of organizations that fulfill fields of interest such as education, healthcare or human needs; offering advice on governance issues and how to involve different generations or include outside directors or trustees; orienting family members of different generations on how to be effective leaders; developing a mission statement for the private foundation.
Use of Companion Fund for Distributions
Private foundations are required to distribute approximately five percent of the value of their assets each year to further their charitable mission. Many private foundations fulfill this requirement by making distributions to other 501(c)(3) tax-exempt organizations that are treated as “public” charities for income tax purposes. In general, “public” charities are those that receive more than one-third of their annual support from the public at large rather than from the founders, as is the case with most family foundations. CICF is a “public” charity and a private foundation client can create a Donor Advised Fund (“ DAF”) as a companion fund of their private foundation to receive part or all of the required five percent annual distribution. In this manner, private foundations do not have to make grant decisions to meet a tax deadline but can make the distribution to its DAF at CICF and then have time to thoughtfully and strategically determine how the DAF funds may be granted to meet their objectives in a transformative manner without the imposition of an artificial tax deadline. The directors or trustees of the private foundation would act as advisors to their DAF at CICF.
Use of Companion Fund to provide Scholarships:
Private foundation clients that desire to grant scholarships must receive special approval from the Internal Revenue Service (“IRS”) to make certain that there is no inurement to any of the founders, directors or trustees in addition to implementing non-discriminatory procedures. Accordingly, to simplify the scholarship granting process, private foundations can create a scholarship fund with CICF that has received IRS approval for granting scholarships. As part of its scholarship fund services, CICF offers expertise in establishing criteria, application and selection processes. Further, the directors or trustees of the private foundation can participate in this process and the actual award ceremony, which can be most fulfilling.
Termination of Private Foundation:
There are instances when the creation of a private foundation was appropriate at the time, but unforeseen circumstances develop that make the tax, administrative and compliance requirements an unnecessary burden to a family. An example would be where the parent generation established a family foundation with the expectation that their children would become involved and embrace the family’s philanthropic objectives. However, the children later have moved to different parts of the country and neither have the time to meet collectively nor have shared values with their parents. Accordingly, the family foundation could be terminated and the funds transferred to a DAF with CICF. The parents would be advisors to the DAF and CICF would handle all of the administrative and investment decisions to simplify the philanthropic objectives of the parents.
These examples illustrate the flexibility and important philanthropic services CICF can offer to private foundation clients.