Many of us are familiar with a public foundation but not a family foundation. Establishing a family foundation gives you the chance to carry out your family’s charitable intentions while also bringing joy to others. The benefits are not only for those receiving the help but for you as well. Let’s find out more about how you can start a family foundation.
What is a Family Foundation?
Family foundations are private foundations set up, funded, and led by families who make donations for philanthropic and social causes that benefit the public. It is a perfect setup for families who cherish giving and want to establish a philanthropic legacy. Moreover, it is a secure way of managing your assets. It can also last as long as the family needs depending on how you want your family to spend its wealth.
Like any private foundation, there are unique and complex requirements for setting up a family foundation. They must meet all the rules of the IRS that are set for private foundations. However, this doesn’t make the process easy. As a result take a look at the requirements below, as it can be time-consuming and complicated.
- Upfront and ongoing administrative requirements
- CPA and lawyer consultations to set up the foundation
- Drafting and filing IRS documents of incorporation
- Obtaining a Tax ID number from the IRS
The family foundation is funded by family assets including cash, publicly traded securities, private stock, real estate, or other family-controlled assets. The foundation can choose to appoint either an outside consultant or family members to manage all its operations and become board members.
How to Start a Family Foundation
1. Define Your Purpose
Apart from being an IRS requirement, your purpose is a critical guideline for its members, investments, and organization’s activities. The foundation’s mission is necessary to gain tax-exempt status. It defines the founder’s intention, “the family,” provides clear directions, and guides how it will make its grants.
2. Decide Between Trust and Nonprofit
Next, the organization must establish itself as either a charitable trust or a nonprofit corporation. How you set up the family foundation will help with the process of filing with the IRS. Both options have advantages and disadvantages. Subsequently, with the assistance of a reputable legal and tax expert, you can make the best choice that supports your purpose.
3. Apply for an Employer Identification Number (EIN)
Granted that you will have a board and employees, you must apply for an employer identification number (EIN), no matter how you decide to structure your foundation. This is another of the IRS requirements.
4. File for Proper Tax-exempt Status with the IRS and Your State
The next step is to file some important documents with the IRS that will identify your organization and how it will be operated and organized. Most of these applications are available online, so read thoroughly to have the supporting documents ready and the payment fee when you apply. Once your application is approved, you can obtain the tax-exempt status, which can also be obtained from your state once you fill in some more paperwork. It is one of the many tax benefits you get once you have a family foundation.
5. Create a Board
Now that you are registered with the IRS, the following step is to create the foundation’s board that will lead the foundation. The board members do not have to be from family only or outsiders. You can choose any or both to serve the board’s purpose and execute the foundation mission.
6. Fund the Foundation
There is no rule with the initial investment of funding the foundation. However, it should be enough to donate and make contributions that abide by the IRS laws for grant giving. It is also wise to create ways to manage your assets so that you can fund the foundation for years to come.
7. Begin Grant-making
Even though the family foundation’s goal is to carry out its philanthropic legacy and wishes, grant-making must be approached strategically. The grant manager and the board must do their due diligence to ensure that their efforts impact those in need.
Establish Your Family Foundation with Saddock Wealth
Although creating a family foundation has many tax advantages, this should not be the only motivation. A family gets many other benefits, including establishing a charitable environment for future generations. Saddock Wealth’s financial experts are here to help you every step of the way. Establish your private family foundation today that will add to the success of your investments.