WHY SET UP A GRANTMAKING FUND?

There are many practical reasons why establishing a grantmaking fund at The Community Foundation might make more sense than creating a private foundation.  Here are a few:
  1. An advised fund is easy and inexpensive to establish. A private foundation requires a donor to create a new organization, apply for tax-exempt status, pay filing fees and incur legal and accounting expenses.
  2. A gift of cash to a charitable fund allows a deduction of up to 50% of a donor's Adjusted Gross Income (AGI). A gift of cash to a private foundation allows a donor to deduct up to 30% of AGI.
  3. By creating a charitable fund, a donor may deduct gifts of closely held long-term appreciated stock at its fair market value, up to 30% of AGI. If the same gift is given to a private foundation, deductibility may be limited to its cost basis up to 20% of AGI.
  4. No tax is imposed on the investment income of an advised fund because it is a component of a public charity. A private foundation pays up to 2% federal excise tax on its investment income and net realized capital gain.
  5. A community foundation donor may remain anonymous. A private foundation must make available to the public the name and address of any substantial contributor.
  6. There are no minimum distribution requirements for an advised fund at a community foundation.  A private foundation must annually distribute at least 5% of its net investment assets, regardless of whether the amount is actually earned.
  7. There are fewer IRS reporting requirements on community foundation grants and grantmaking funds. Requirements that do exist are handled by the staff of The Community Foundation at no extra charge to individual donors.
  8. Charitable gifts to any grantmaking fund at The Community Foundation are almost always considered "public support," thus helping the recipient charity retain its public charity status. A private foundation grant is usually not considered "public support" in its entirety and, thus, may not be as helpful to the recipient charity in retaining its public charity status.
We are available to help you and your clients discuss and consider these options.  Click here to contact us for more information.
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Why set up a grantmaking fund?