Private Foundation to Donor-Advised Fund: What's involved in making the move?

Amy Jordan |

With the total number of foundations in the United States nearing 120,000, and combined assets for all types of foundations now reaching over $1 trillion, it’s no wonder so many of your clients are curious about establishing a private foundation or fund when they begin to explore structuring their charitable giving activities. What's more, the growth in donor-advised funds as a popular tool for organizing charitable giving has caused many philanthropists to consider the benefits of a donor-advised fund. Some of your clients with private foundations may be considering transferring the foundation’s assets to a donor-advised fund at a community foundation to better carry out the family foundation’s mission. 

What are the most important points to cover with your clients who are considering moving from a private foundation to a donor-advised fund at Hudson Community Foundation as their primary philanthropic structure? Here are three factors a client should consider: 

–Whether the day-to-day management and administration of the private foundation has become more time-consuming than expected and is taking the family’s focus away from nonprofits, the community, and making grants.

–Whether the tax rules related to investments, distributions, and “self-dealing” have become harder to navigate and are perhaps even preventing the family from maximizing tax benefits of charitable giving.

–Whether the family feels hampered by a lack of connection to reliable information about which nonprofits’ programs most align with their charitable giving goals and struggle with how to evaluate nonprofits and the foundation’s grants. 

In many cases, where one or more of these factors is in play, a donor-advised fund at Hudson Community Foundation can reduce administrative headaches, avoid tax pitfalls, and open up a host of resources to help the family work effectively with nonprofits to achieve impact. 

If transferring a private foundation to a donor-advised fund at Hudson Community Foundation is the right move for your client, please give us a call. We can walk you through the steps involved, which include:

–The board of the private foundation will approve the termination and capture that approval in meeting minutes or a consent of directors. (The foundation will need to be sure it pays all of its liabilities and expenses before accounts are closed.) 

–Your client will establish a donor-advised fund at Hudson Community Foundation, with no start-up costs, so that the structure for selection and succession of fund advisors (who will handle grantmaking) mirrors the board of directors structure of the private foundation. The client can select a name for the donor-advised fund so that it matches as closely as possible the name of the private foundation. This ensures continuity and a smooth transition for both family members and nonprofit grantees. 

 

With a fund at Hudson Community Foundation (HCF), advisors can manage the charitable assets on your preferred platform at any amount. Assets stay under your management. You can provide your clients with the consistent investment advice they expect.  We are your partner in charitable giving!


 
   

The team at HCF is a resource as you serve your philanthropic clients. We understand the charitable side and are happy to serve as a secondary source as you manage the primary relationship with your clients. This blog is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

 

–The private foundation will distribute (grant) its net assets to the community foundation to be added to the newly-established donor-advised fund. 

 

–As long as the private foundation corporate entity is in good standing according to state laws, the foundation’s termination for tax purposes will be automatic and smooth because, as required by the IRS, the community foundation is an organization in good standing that has been in continuous existence for more than five years. The private foundation will then simply file an informational tax return with the IRS for its final year (even if it is a short tax year).

 

–The last step is for the private foundation to take any steps required for termination under the laws of any and all states in which it was registered, especially if the private foundation was organized in corporate form. 

 

Please reach out anytime to discuss whether transferring a private foundation to a fund at the community foundation could help improve a client’s experience with philanthropy. We’d be glad to help.