Companion Funds for Private Foundations
If your client has a private foundation, they may benefit from also having a donor advised fund at CFCG to complement their private foundation. Donor advised funds allow for flexibility in the timing of grants, anonymity, enhanced tax benefits, access to local expertise, honoring trustees or supporting a nonprofit.
For Private Foundations: Benefits of having a Donor Advised Fund at CFCG
- Allow Flexibility in the Timing of Grants — Grants from a private foundation to a donor advised fund are qualified distributions because CFCG is a 501(c)(3) nonprofit. CFCG processes grant recommendations weekly, so the donor advised fund advisor can recommend a grant from the fund to a nonprofit when the timing is right.
- Anonymity – A Donor Advised Fund can be anonymous. Private Foundations can use their donor advised fund to make anonymous grants to organizations. These grants could be to organizations outside the private foundation’s stated focus area, or to give more than the private foundation’s stated maximum grant amount.
- Enhanced Tax Benefits – Contributions to a donor advised fund receive more favorable tax treatment than contributions to a private foundation because the Community Foundation is a 501(c)(3)nonprofit.
Income Tax Deductions
Donor Advised Fund at CFCG Private Foundation Cash: Up to 60% of AGI Cash: Up to 30% of AGI Stock: FMV up to 30% of AGI Stock: FMV up to 20% of AGI Real Estate, Limited Partnership Interest or Closely Held Stock:
FMV up to 30% of AGI
Real Estate, Limited Partnership Interest or Closely Held Stock:
Cost Basis up to 20% of AGI
- Access to Local Expertise – With strong ties in the Central Georgia community, the Foundation staff can offer objective philanthropic advice, research specific organizations or causes, conduct an application and review process, and provide a post-grant evaluation for you.
- Honoring Trustees – A private foundation can establish individual donor advised funds in the names of their trustees and make contributions to these funds annually. This enables the trustees to make grants to support organizations they love without co-mingling the grants with the private foundation’s giving focus.
- Supporting a Nonprofit – Private foundations that want to support a specific nonprofit may have concerns that their gift might be used for other projects than they intended, the residual assets may be poorly managed, or the organization could cease to exist. Establishing a permanent designated fund at a community foundation will support the nonprofit and ensure the intent of the gift is maintained.
Converting a Private Foundation into a fund at CFCG
If managing a private foundation is too cumbersome for your client, they can choose to convert their private foundation into a fund at the Community Foundation. A private foundation considering this transaction should review its particular circumstances with its own legal and accounting counsel.
Five simple steps to convert a private foundation to a donor advised fund:
- Determine and Satisfy any Current Obligations — Determine whether the foundation has current tax obligations or restrictions to assets. If so, create a reserve for anticipated expenditures for the conversion process.Determine whether the private foundation has current obligations:
- The 1.39% investment income excise tax, unrelated business income taxes, or private foundation penalty taxes. (Note that foundations must make quarterly estimated payments of these taxes.)
- Outstanding grants that are subject to expenditure responsibility (see IRS Form 990-PF, Part VII-B, Line 5c).
- Fees for accountants, lawyers, investment managers, or other service providers.
- Filing of IRS Form 990-PF and related forms with the IRS and state attorney general.
Satisfy all current obligations of the private foundation and create a reserve for anticipated expenditures through the completion of the conversion process. Identify any restrictions that apply to the foundation’s assets. These might include purpose restrictions, endowment restrictions, or restrictions on the distribution of assets upon dissolution. Funds subject to narrow purpose restrictions or dissolution provisions that require distribution to a particular organization may not be good candidates for conversion, unless the restrictions can be eliminated with the donor’s consent, an amendment to the foundation’s governing documents, or a court order.
- Prepare a Fund Agreement — Work with CFCG staff to prepare a fund agreement that will reflect any purpose or endowment restrictions that will apply to the fund and identify the advisors to the fund.
- Transfer the Assets — Make a final grant from the Private Foundation to the newly created fund at CFCG.
- Dissolve the Corporation — Follow the procedure in the Georgia Nonprofit Corporation Code to dissolve the foundation, which may include a vote by the foundation’s Board of Directors for dissolution and filing the Intent to Dissolve with the Secretary of State.
- A vote by the corporation’s Board of Directors proposing dissolution for submission to the members, if there are members entitled to vote thereon.
- A vote by the members approving the dissolution.
- Filing a Notice of Intent to Dissolve with the Secretary of State and publishing the notice.
- File the Articles of Dissolution with the Secretary of State’s Office when all known obligations of the corporation have been paid or adequate provisions have been made.
- File a statement with the IRS after all assets have been transferred indicating the private foundation’s intent to terminate its private foundation status as the result of a transfer of all of the private foundation’s net assets to an organization described in Section 509(a)(1).
- Prepare a Final Tax Return and Form 990 — Complete the remaining obligations of the foundation, including the preparation of a final Tax Return and Form 990-PF.