PAAF vs Managing Your Own Private Foundation
Many people believe that a private or family foundation provides the best vehicle for managing their charitable giving. While this is true in some cases, there are some disadvantages to managing a private foundation such as the administration and the costs incurred adhering to legal, accounting and reporting requirements. There is also the concern of maintaining the commitment and charitable focus by the next generation of family members.
A better alternative may be to transfer the assets to a donor advised fund with the PAA Foundation.
- The administrative burden of managing a private foundation is eliminated
- Administrative and investment fees are greatly reduced due to the economies of scale that result from working within a larger foundation
- PAAF handles all legal, accounting and IRS reporting requirements
- Directors from the private foundation may serve as “Advisors” to the fund and continue to recommend donations to the organizations the private foundation supports
- The fund can be managed online through the PAA Foundation Management System
- The fund will be eligible for incentives that PAAF offers to all its donors
Additionally, you will be subject to the rules governing public charities rather than the more rigid rules governing private foundations:
- There is no requirement for a PAAF Family Foundation Fund to distribute at least 5% in grants annually as there is for a private foundation
- A PAAF Family Foundation Fund is not subject to the annual excise tax of 2% of net investment income that a private foundation pays
- There are several options available as you consider transferring your foundation to PAAF. Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets to a public charity such as PAAF. The PAA Foundation satisfies the two primary IRS requirements for the termination of a private foundation and the private foundation's assets can be used to establish a PAAF donor advised fund using a similar name.
Already have a private foundation? Your options include:
Establishing a Donor Advised Fund
You can terminate your current foundation and transfer assets to establish a PAAF fund without incurring any penalties. This can be accomplished in a very timely manner, without any set-up costs to you. PAAF staff handles all the legal and accounting tasks involved in the transfer.
The Custodial Account Option
Under this option, you can transfer the assets of your current foundation to PAAF but opt to retain control over the management of investments for the account. The fund may be terminated at any time but, at termination, all assets must be transferred to one or more tax-exempt organizations.
With either option, an advisory committee, which may consist of trustees from the private foundation, should be designated when the account is established. Additional donations to either type of fund or grant requests may be made at any time.