For more than a century, private foundations have been the optimal choice of charitable giving vehicles for those seeking the maximum impact and flexibility for their philanthropy. They also provide unparalleled financial control, powerful tax advantages, the ability to strengthen family ties and build a meaningful legacy.
Unfortunately, however, some donors – and their financial advisors – steer clear of private foundations due to outdated misconceptions about cost, setup and management. They mistakenly believe foundations to be:
- only for the Ultra-High-Net-Worth
- difficult and time-consuming to establish
- burdensome to operate
- expensive due to continual investment in staff and infrastructure
Today’s foundations benefit from advancements in technology as well as guidance and outsourcing from philanthropy experts like Foundation Source. These professionals can provide varying degrees of support according to one’s needs and philanthropic goals. They can work directly with an individual or family or can partner with financial advisors to help them provide charitable giving guidance to their clients. (A growing number of financial advisors are adding philanthropy expertise to their practice. They’re realizing it can help them engage more personally with their clients by addressing meaningful topics like family values, motivations for giving and how to establish a charitable legacy. These discussions help to provide more holistic financial advice.)
The private foundations of today are a whole new and exciting ball game – and a realistic charitable giving option for more people than one might expect. Let’s discover the truth about them by dispelling these five common myths.
Myth #1: You need at least $5 million to start a foundation.
Fact: Today more than 67% of all private foundations have less than $1 million in assets. While foundations’ administrative costs used to require initial funding of at least $5 million, it’s now practical to start a foundation with less than $1 million in assets, thanks to savings realized through online foundation management platforms such as our Impactfully platform and professional outsourced support and advisory services such as those provided by our Foundation Source experts.
Myth #2: Private foundations are time-consuming, difficult and expensive to set up.
Fact: With the help of philanthropic experts like Foundation Source, a private foundation can be established and operational in less than one week.
Simply put, a donor needs only to do three things to start a foundation:
- determine a name for their foundation
- complete a brief set-up questionnaire to denote who will fund the foundation and where its investment account will reside
- fund the foundation to begin giving
Myth #3: Private foundations are a burden to operate.
Fact: With today’s technology solutions and expert guidance and outsourcing, running a foundation is much easier and more enjoyable than it was decades ago. For example, Foundation Source’s robust Impactfully platform offers a dynamic operational dashboard that helps foundations consolidate their operations and administration and efficiently manage their grantmaking. With it foundations can, for example, file their taxes; review their financial accounts; engage with their nonprofit partners, board members and staff; create, distribute and review grant applications; and measure the impact of their giving.
For additional support, foundations can turn to expert philanthropic advisors for guidance in myriad charitable giving issues such as developing a charitable focus or mission, running an effective board meeting or communicating with a grantee.
Myth #4: Private foundations require continual investment in staff and infrastructure.
Fact: Such an investment is optional, thanks to the flexible nature of foundations as well as outsourcing support. From a flexibility standpoint, when one starts a foundation, they can essentially do as much or as little with it as they wish, from simply making straightforward annual charitable donations to elaborately managing myriad philanthropic initiatives.
For donors who choose the latter and aim to do great things with their foundation but don’t want to hire staff and manage charitable programs, outsourcing from management solution providers like Foundation Source is available. These experts can serve as the foundation’s virtual staff or work in partnership with its founders and advisors. They can file taxes, monitor compliance; handle back-office responsibilities; and, in our case, provide the foundation with a purpose-built platform.
Myth #5: Only cash can be donated to a private foundation.
Fact: Private foundations can be funded with a wide variety of assets. And unlike other giving vehicles that often require liquidation of donated assets, private foundations can continue to hold them. This can be particularly advantageous if the assets are expected to continually increase in value. These assets could include:
- Publicly traded securities
- Alternative assets, including private equity and hedge funds
- Real estate
- Tangible assets (art, jewelry, collectibles)
- Intangible personal property (copyrights, patents, royalties)
- Life insurance and annuities
- Cryptocurrency
Running a private foundation can be one of life’s most rewarding experiences. And with the help of robust technology platforms and philanthropic experts who can assist with the legal, accounting and compliance requirements of private foundations, donors can focus on the deeply satisfying part of their giving – effecting positive change in the world.
Want to learn more about starting a private foundation?
Read about the benefits and considerations of a private foundation beyond tax savings.
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