There are many benefits of choosing a private foundation as your charitable vehicle, but as we learned from our own philanthropic experts, there are six unique strategies that can be used to maximize impact. Yet these same strategies are sometimes underutilized because people simply don’t know they’re an option. Our private foundation clients who are implementing these tactics are seeing tremendous impact, so to help shine a spotlight on them, we’ve created the Differentiated Giving Kit. Here you’ll get key takeaways and a Q&A summary of our presentation, along with the on-demand webinar if you want to dive deeper into this topic and hear the powerful stories that bring them to life.
1. Leveraging Expenses Creates Many Possibilities for Foundations
Each year, foundations must distribute at least 5% of the previous year’s assets, also known as the minimum distribution requirement (MDR). What some people may not know, however, is that the 5% payout requirement includes both distributions for charitable work as well as the expenses involved in running the foundation. Salaries, benefits, professional fees, travel expenses, general overhead, and office supplies are examples of expenses. Charitable expenses that advance the foundation’s mission, such as funding a research study or producing a documentary, can also count toward satisfying the MDR. On the other hand, investment advisory and bank fees do not. They are considered investment expenses.
2. Carry-Forward Distributions Create a Cushion in Underperforming Years
In years when a foundation distributes more than 5% of its assets, it can roll the excess amount forward for up to five years and apply the amount to help meet the MDR in years it may want to distribute less from the endowment for financial or strategic reasons. For instance, in years when markets overperform and you anticipate a higher distribution in the following year, it can be a good idea to prepare by boosting distributions in the current year.
3. Program-Related Investments Give Foundations Flexibility for Giving
Grantmaking isn’t the only way that foundations can support charitable work. They can also use program-related investments, or PRIs, to support public charities through loans and loan guarantees, or make equity investments in for-profit organizations that align with and advance the foundation’s charitable mission. Some PRI dollars may be recoverable and recycled into additional distributions without depleting a foundation’s asset base, further maximizing a foundation’s impact. Best of all: PRIs count toward MDRs.
4. Foundations Can Grant Directly to Individuals or Families
In addition to giving to a nonprofit to provide aid to individuals or families, private foundations can also give directly to individuals or families who fall in certain charitable classes. Grants to individuals (GTIs) allow foundations to be responsive and get aid directly to people facing hardship and emergencies, such as natural disasters. It also facilitates gifts to people who aren’t connected with a nonprofit and who might not otherwise receive aid. Other types of GTIs are scholarships and prizes. While some GTIs may require advance IRS approval, the following three conditions can help you remain compliant: no strings attached to them; they don’t go to a disqualified person, such as a foundation insider; and the foundation creates a mechanism to get the word out about applying.
Want to See the Rest of the List?
See all six unique strategies in the full Differentiated Giving Kit.
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Check out our other resources on the blog!
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