Helping Clients Find the Right Charitable Vehicle
By Maureen Wendling, CAP®
When clients begin planning a significant charitable legacy, many first consider creating a private family foundation. Private foundations can play an important role in philanthropy, but they often require more time, expense and administration than donors expect. For many individuals and families, a fund at the Lehigh Valley Community Foundation offers similar benefits with greater flexibility, lower administrative costs and a closer connection to the Lehigh Valley. Understanding the differences can help professional advisors guide clients toward the charitable vehicle that best fits their goals, assets and desired level of involvement.
The Responsibilities of a Private Foundation
A private foundation gives a family control over governance, investments, grantmaking and operations. That control comes with substantial responsibilities, including legal formation, board governance, accounting, investment oversight, regulatory compliance and annual tax filings such as IRS Form 990-PF. Private foundations are also subject to rules governing self-dealing, annual distributions and excise taxes.
For families with substantial charitable assets and a desire to operate their own philanthropic organization, those obligations may be worthwhile. For others, they can become a burden that distracts from the purpose of their giving.
“Private foundations have their place, but many donors underestimate the ongoing work involved—the annual tax filings, administrative responsibilities and constant stream of funding requests,” said Ed Lentz, Esq., of Fitzpatrick Lentz & Bubba, P.C. “Establishing a donor-advised fund, or converting a private foundation into a fund at the Lehigh Valley Community Foundation, allows donors to continue pursuing their charitable goals while relieving them of much of that burden.”
A Simpler Alternative at LVCF
Through a donor-advised fund or another charitable fund at LVCF, clients can recommend grants, involve children and grandchildren in family philanthropy, establish a lasting legacy and receive immediate tax benefits for eligible contributions.
LVCF handles investment oversight, nonprofit due diligence, grant processing, tax reporting and regulatory compliance, allowing donors to focus on the impact of their giving. LVCF can also work with donors who are considering converting an existing private foundation into a charitable fund. Such a transition can preserve the family’s charitable purpose while reducing the administrative demands on donors, relatives and advisors.
Flexibility and Local Expertise
A fund at LVCF can be established during a donor’s lifetime or through an estate plan. Funds can support specific organizations, charitable interests, geographic areas or future generations of family philanthropy. Subject to its gift-acceptance policies, LVCF can receive cash, appreciated securities, closely held business interests, real estate and other assets. This flexibility can be useful in tax, estate, business-succession and wealth-transfer planning.
LVCF also brings knowledge of the region’s nonprofit organizations and emerging community needs. Its staff can help donors identify effective organizations, develop grantmaking strategies, facilitate family discussions and prepare successor advisors to carry out a donor’s intent
Tax and Planning Considerations
“In considering whether to create a private foundation, or to create a donor-advised or other fund at the Lehigh Valley Community Foundation, there is no substitute for savvy tax planning with one’s CPA or other tax professional and a detailed review of the donor’s short-term and long-term objectives with an attorney well-versed in creating and administering such charitable vehicles,” noted Judith A. Harris, Esq., of Norris McLaughlin, P.A.
Because LVCF is a public charity, contributions may qualify for more favorable charitable deduction limits than gifts to a private foundation, particularly for cash and appreciated assets. The specific treatment depends on the donor’s circumstances, the asset and applicable tax law. Professional advisors should evaluate those considerations as part of a client’s broader financial, tax and estate plan.
A Partner to Professional Advisors
The Community Foundation works alongside attorneys, accountants, financial advisors and trust officers. It does not replace the advisor-client relationship. Instead, the Foundation provides charitable-planning expertise, fund options and long-term administration to help clients carry out their philanthropic goals.
The choice between a private foundation and an LVCF fund depends on the client’s assets, vision, desired control and willingness to manage ongoing operations. For many donors, an LVCF fund offers a practical balance of flexibility, family involvement, professional administration and community impact.
Lehigh Valley Community Foundation | The Best Choice
The Lehigh Valley Community Foundation offers an alternative to the expense and administrative burden of creating or maintaining a private foundation. The Foundation’s EverGreen Fund is the perfect alternative to starting or maintaining a private foundation.
An overview of the similarities and differences between a private foundation and a fund at the Community Foundation is illustrated in the following document:
Comparison of Charitable Funds & Private Foundations | PDF
Internal Revenue Code Section 507 permits termination of a private foundation and the distribution of its assets to a qualified public charity, such as the Lehigh Valley Community Foundation (LVCF). LVCF welcomes the transfer of private foundations. There are various reasons as to why it’s necessary to terminate a private foundation and LVCF can assist in the process.
ASK Maureen| Ask me how the Community Foundation can help you and your clients create a lasting legacy and make a difference in the community…
Maureen Connolley Wendling, CAP®
Director of Donor Initiatives
Lehigh Valley Community Foundation
810 W. Hamilton Street, 310, Allentown, PA 18108
610 351-5353 Ext. #116
Direct Line 484 860-3154 | maureen@lvcfoundation.org