Develop a Private Foundation as Your Legacy

If you want to invest money and time furthering noble causes consider building a personal foundation. Personal foundations can allow you to manage your gifts, lower taxes, and impart your values to generation after generation.

A rule of thumb indicates a foundation needs to have an annual minimum of approximately $25,000 from endowments, yearly contributions or both - available for making grants to charitable efforts. Cash or assets you give to your foundation is treated as being a deductible charitable contribution and helps lower your federal income taxes (also deductible for most state income taxes).

The federal tax deduction is limited as follows. Individuals might deduct cash donations to a personal foundation up to thirty percent of their adjusted gross income (AGI) and appreciated property up to twenty 20% of AGI. All contributions stipulated in a will are fully deductible.

You can establish a flow-through foundation. It converts appreciated property into money and allocates the proceeds to public charities but doesn't build up an endowment. This may lower taxes for you if you have highly-appreciated resources whose sale would result in significant capital gains taxes. The typical asset would be unproductive raw land that generates no income for you.

Your foundation can be a non-operating foundation whereby it makes grants to help fund the efforts of other institutions or individuals. The alternative is a working foundation (ala the Bill Gates Foundation), which runs a center or institution, such as a museum or research lab. Your foundation's objective may be as extensive as ending world hunger or as specific as you wish. Either way, the contributions lower taxes for you.

Obviously, private family foundations must function according to tax legislation, including distributing at least 5 % of their financial resources every year and paying a 1-2 % tax on investment income. However, as part of an overall retirement and estate strategy, a private family foundation decreases the amount of your taxable estate (without any legislation, estates of $1 million or more will be taxable starting n 2013). You may make gifts to your foundation without affecting the yearly present tax exclusion ($13,000 per individual donee) or the gift tax credit. Therefore, you lower taxes two ways-income tax and estate tax.

For a lot of high net worth people, a major attraction of the private family foundation is the greater control in contrast to a big lump-sum donation to a public charity or even the less variable charitable trust. While trust resources may be difficult to change, a private foundation integrated like a non-profit may modify its objective with time.

Having a private family foundation, you may entail your loved ones - for generations - directly in the social problems and community actions that mean the most to you. They can receive salaries as trustees, directors or workers of the foundation as long as they legally serve in those roles and justify their salary.